Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.
Equity funding is just one source of funding for your startup. There are many others such as equipment leasing.
Equipment leasing is used to reduce cash requirements for a startup by leasing the equipment rather than buying it.
An equipment leasing company owns the equipment and uses it as collateral for buying the equipment and then charges the startup a monthly rental fee.
There are two types of leasing. The Finance Lease (also called the Capital Lease) and the Operating Lease.
The Finance Lease is a long-term arrangement in which the startup is required to pay the lease rent until the end of the contract, which is usually the life of the asset.
The Operating Lease is for a shorter period of time and is often cancelable.
Providers of equipment leasing must have a license and cannot hold or offer real estate. The lease period cannot be fixed for less than three years, except for IT and computer equipment.
Leased equipment appears as an expense on the income statement rather than on the balance sheet, which would reduce the startups’ liquidity.
Over the long term, the cost of the asset will be higher than that of an outright purchase.
It’s best to look for a closed-end lease without a balloon payment at the end.
An open-end lease requires you to pay the difference between the value of the equipment and what you’ve paid for it so far.
Equipment leasing works best for cash-flow management when you have a long-term need for the equipment.
Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.
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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.