Business & Services

Smart Equipment Leasing – Comparison of Banking Financing with Rental Companies

The savvy business owners who choose to rent professional equipment can save hard earned ceps, accumulated debt and industrial force headaches by optimizing their relationships with loan entities.

Customers seeking to rent equipment for their business most often search for one of the two sources – traditional banking funding programs or specialized rental companies such as Elase. Here are some key differences in consideration when comparing these programs.

1. Interest rate fluctuations

In a healthy economy, banks often choose to offer equipment rental as a service for their professional customers. In this way, banks promote the economic growth of local communities by supporting the expansion of growing industries. However, banks are not in the risk sector and this, their programs are subject to a modification of current economic conditions.

An example of this is interest rates. In accordance with their philosophy of conservative risks, banks do not diverge risk with interest rates. As a general rule, banking lines will fluctuate on the preferential rate – as the Federal Reserve increases or reduces the rate, as well as your interest remuneration will increase or decrease. These economic fluctuations can have a financial impact on your business outside your control.

The opposite is true for leasing companies because they take 100% interest rate risk. Therefore, when the rates of the industry decrease or increase, your rental payment remains the same. Payment on a lease will never change during its mandate, regardless of interest rates and inflation. You know what you get from the first day.

2. Impact on additional funding

The way your source of funding signals your rented commercial equipment with the Secretary of State may have a direct impact on your ability to obtain additional funding for your business.

When your corporate equipment is funded by a third party leasing company, this company files a CUME UCC (Uniform Commercial Code) which specifies the Secretary of State where the Customer is and that the rented equipment belongs to The leasing company. For example, if your business makes the decision to rent an oven for your new restaurant, a leasing company would designate the oven itself as collateral.

In comparison, all property belonging to the company are indicated when a bank finances the lease. UCC coverage is usually filed, which includes equipment as well as all assets. Therefore, not only the oven for your new restaurant would be considered a guarantee, but your business just too.

When a UCC coverage is in place, other banks will not want to provide overlapping funding with another lender. If, however, your funding is provided by a third party leasing company, other lenders will see that only equipment is under consideration and support for the financing of loans because they can cover the UCC of the rest of the ‘company.

3. Access to capital

Banks and leasing companies evaluate the exhibition (the total amount of debt taken by a company) when considering providing funding. The difference in the way these entities examine total debt may have a significant influence on their decision to finance your equipment, as well as other financed assets.

In most cases, banks have a borrowing threshold with a borrower. This can include the credit line on the house, auto loans, credit cards, corporate debts and personal mortgage. If you encounter a debt amount that the Bank considers a risk, they can choose to end business with your business. Or, they can refuse you funding because of the amount of debt you already have.

Leasing companies manage the same problem, but only consider the equipment funded for this client. Thus, using a third-party leasing company, you can maintain access to capital with your banker without attaching lines of credit. A company can never have too much access to capital!

4. Flexibility in terms

Most banks are very structured and prudent in their terms of rent. Frequently, they need 10% to 20% to finance equipment for a company, with a security obligation, such as a minimum amount of a CD or reserve in a current account.

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