Five Reasons Why Equipment Leasing Makes Better Sense When Starting Your Car Wash Business
When deciding to open a car wash business, you will also have to consider how you are going to procure your required equipment — do you lease it or buy it through loans. This decision can have a great impact on the profitability and even longevity of your venture. Generally, car wash equipment leasing offers many advantages over directly buying it through finance. Combine it with smart expense control, your monthly profits from your business will probably look much better if you opt to lease your equipment.
5 Benefits Of Leasing Car Wash Equipment Leasing
Leasing your equipment rather that purchasing it through financing is a far more attractive proposal for the following reasons –
- Lower Initial Payment: There is a big difference between leasing and financing in terms of the initial payment you are required to make. When financing an equipment purchase, you will be required by the banker to shell out anywhere from 10% — 30% or more of the total equipment cost. This can put a huge strain on your capital and liquidity. In contrast, a car wash equipment lease may only requires you to make a couple of payments in advance. This is something you can easily meet out of your available funds, without risking the overall liquidity of your business. And in some cases, the vendor may not even ask for any advance payments at all.
- Less Collateral: The amount of collateral required for a lease is also far less than what will be required for financing a purchase. When taking a lease, the collateral of the lease is generally the equipment you are leasing out. The vendor does not normally ask for additional collateral. However, this is not the case with car wash equipment financing. If you opt for financing, the bank may ask you to provide further collateral in addition to the equipment you purchase. This not only worrisome, but will also block you from using that extra collateral to raise additional capital in the future.
- Any Equipment Leasable: A lease will allow you to obtain any car wash equipment that is necessary for your business. This many not be the case when it comes to the banks. When you try to finance your purchase, you will be faced with restrictions on which equipment the bank will finance. This is because banks will generally avoid financing the purchase of an equipment they think cannot be easily resold. If they believe they cannot resell the equipment you have purchased in case you go bankrupt, then they will not finance it.
- Fully Funded: As discussed earlier, banks will require you to provide a down payment before they approve your financing request. In addition, you will also have to spend your own money for all extra expenses like shipping and transportation, other soft costs etc. As such, you can never obtain 100% funding when looking to get finance from banks to purchase your equipment. This is not the case with leases. When taking a lease, not only will 100% of your equipment cost be covered, but all your additional costs will also be included.
- Better Balance Sheet: When you are looking for additional funding for your business in the future, one of the most important things to ensure is that your balance sheet looks good. A lease helps you do that. If you take a loan to buy your equipment, then that loan will be recorded as a debt on your balance sheet. However, a lease will only be recorded as an expense. As such, your balance sheet will not show too much debt. This can greatly affect your future funding prospects.
And if you decide on leasing out your equipment, you can get much better deals for your leases if you ensure that your credit rating is top notch. A good credit score means that you will be able to lease out your desired car wash equipment at much lesser monthly payments. But if your credit score is weak, you will have to shell out more money as monthly payments. This will go on to affect the profitability of your business. So make sure that you have a good credit score if you plan on visiting some vendors for leasing your equipment.