Find out all about asset leasing, and whether it is a good fit for your business needs.
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Asset leasing is a form of lending that provides small business owners with access to assets such as equipment, machinery and vehicles.
Think of asset leasing as a rental agreement. Under the arrangement, the lessor (equipment supplier) purchases an asset for the use of the lessee (business owner) in exchange for lease payments. At the end of the lease term, the equipment will be returned back to the lessor.
Repayments and interest rates are fixed for the duration of the lease. Depending on the terms of your lease, maintenance, repairs and insurance may be managed by your lender and included as part of your monthly lease payment.
Obtaining equipment tends to be a cost-heavy endeavour. As such, it can be particularly challenging for small businesses to gain access the tools they need without putting a dent on their cash flow. With asset leasing, small business owners can now acquire the equipment they need, even if they don’t qualify for traditional loans.
The following are general requirements that can help you assess if asset leasing is a good fit for your business:
You need your equipment for a short period of time: Rather than purchasing and reselling your equipment when it’s no longer required, it can be a better option to lease an equipment if you only need it for a short period of time. Asset leasing tends to be a good fit for businesses looking to obtain an equipment for short term use (three years or less) - such as when they’re working with rapidly evolving technology, or are using equipment that depreciates quickly.
You don’t qualify for traditional financing: Asset leases include less stringent terms compared to traditional financing. The terms will vary across banks and traditional lenders, but most require that borrowers make a down payment, have a stellar credit history, put up additional collateral and have a minimum operational history of two to three years. In comparison, leases typically feature more flexible credit guidelines and don’t require down payments.
Just as how prospective lenders perform checks and assess your suitability for a lease, you’ll need to assess these providers with the same level of scrutiny in order to pick out a company or lease that best suits your needs.
Shop around for the best rates: Don’t immediately assume that your manufacturer’s captive finance company or bank will offer the best lending terms. Take the time to research on different equipment leasing companies, and compare the rates, lease terms, fees and options that are offered.
Do your due diligence: This is a simple, but fundamental step to ensure that you’re working with a trusted and reputable asset leasing provider. Do a search up on their online reviews and profiles, and speak to businesses that have utilised their services.
Providing detailed information will help minimise possible delays that may crop up when lenders review your application, and increase your chances of getting approved.
Dive into the specifics about the equipment that you plan to obtain: indicate the model you’re getting, the quantity required, expected purpose and equipment supplier. Do include documents that supports your acquisition, such as an invoice from your supplier, or images of a malfunctioning equipment that you’re planning to replace. You’ll also need to show how obtaining the equipment will benefit your venture, through providing projections of your revenue and cost savings achieved due to the use of the equipment.
Getting several equipment at the same time? You might want to bundle your acquisitions under a single lease, as bundled leases typically carry lower rates. You’ll also benefit from cost and time savings as the processing fees, along with application and onboarding processes involved are minimised.
Asset leasing is a great option if you’re looking to obtain equipment for short term usage. However, applications with banks and traditional lenders often involve lengthy approval and onboarding periods - it can take up to several weeks from your application before you gain access to funding.
As such, these financing solutions don’t lend themselves to SMEs in need of immediate financing - such as businesses that are dealing with an unexpected equipment breakdown. In these cases, turning to alternative lenders for an unsecured loan can be a viable option, as these platforms offer streamlined application processes and quick access to funding.
No waiting time.
1 - 6 months repayment.