What steps do I need to take before considering if equipment leasing is right for me? What is the process really like? What happens after?
Stage One – Answer the Important Questions
- What’s your monthly budget?
Leasing enables you to buy the equipment you need now and pay for the cost affordably across time with low monthly payments. But, before you can make the final decision, you have to know what you can afford each month. - How long do you plan on using the equipment?
The type of equipment you need will determine the best leasing option for you. For example: a 3-year lease on necessary technology (like a computer) makes the most sense whereas if you are leasing a vehicle, you can get away with up to 6 years.
Stage Two – Understand the Basics
- What type of equipment qualifies and what doesn’t?
As a general rule of thumb, the equipment has to be something used for business purposes. We consider those “hard assets”. However, Direct Capital will finance up to 20% of soft costs too, including training, shipping, and installation.
Another thing to consider is the cost of equipment you need. Generally, it starts to make sense to lease if the equipment you’re buying costs $2,000 or more. It’s rare to find leasing companies that will enter into an agreement with equipment costs less than that.
Stage Three – Determining if Leasing Really is Right for You
- We understand that many businesses have cash readily available to use on large purchases like equipment. If that’s how you prefer to operate, then we think that is great!
However, if you aren’t ready to uproot your cash flow, leasing is definitely the better option. While it’s true that you will have an added monthly expense and will have to pay interest, the beauty of leasing equipment is that it works for you instantly, regardless of how many payments you still have to make. The equipment will help you improve production and increase revenue over time while also preserving your cash flow.
Stage Four – The Leasing Process
- Complete the application
Direct Capital make it easy for customers to apply by offering an online application and near-instant approvals. To complete the application, you need basic business information and financial data for the company and its principles. - Approval
Typically within 24 hours you will hear back from the lender about whether or not your business is approved. - Review your documents
Here is the important part. Make sure to carefully review the lease structure, monthly payments, fees, and interest rates before signing the documents. You want everything to be in order before sending the agreement back to the lender. - Receive your equipment
Most often, equipment lenders like Direct Capital will work directly with the vendor to get you the equipment you requested. Once the documents and first payment are received, the funds will be released to the vendor and you will get your equipment.
Stage Five – Choosing a Buyout Option
Once you’ve decided to move forward, you need to decide which end-of-lease option you want — a $1 buyout or a Fair Market Value lease. But how do you choose?
- What is a $1 buyout?
At the end of your lease term, you pay $1 and then you own the equipment outright.
> Benefits of $1 buyout:
– For a good cost, you will be able to own the equipment at the end of the term.
– If your equipment is long-lasting (like construction or auto repair), the $1 buyout is your best option because you’ll be able to keep the equipment once you’ve finished paying it off. - What is a FMV (Fair Market Value) lease?
It’s one that has a residual purchase option at the end of the contract. Meaning, you have options. You have no obligation to purchase the equipment at the end of your terms, but if you do want it, there are a few things you can do. You can choose to buy it outright at fair market value (often set by the lender), give the equipment back to the lender, or choose to finance it for a longer period of time.
> Benefits of FMV:
– The fair market value lease often gives you the lowest monthly payments.
– It’s usually considered an expense that is fully deductible on your balance sheet because it’s not a long-term asset, debt, or liability. This may give you some tax benefits you wouldn’t otherwise have.
Stage Six – Choosing the Right Lender
“But,” you may be asking, “shouldn’t I have made the decision already?”
Not Entirely. If you’ve gone through the application process with one lender or bank and don’t think they are the right match for you, you still have options. Here are some factors to consider when choosing your lender:
- Do they have good end-of-lease options? (Remember: $1 buyout, FMV, or EFA)
- Do they consider your cash flow and what you can reasonably afford?
- Do they have professional, top-notch customer service?
- Are they leaders in lending technology?
Going through the lending process isn’t easy, and you want your lending partner to be behind you 100% of the way. Find the one that best matches your needs and you’ll never have to worry about a thing.