How to Apply for an Equipment Lease: Step-by-Step Guide

How to Apply for an Equipment Lease: Step-by-Step Guide

When it comes to equipment procurement, leasing equipment can be a compelling option for businesses, particularly in capital-intensive industries where equipment carries a steep price tag. The life sciences industry is—and this can be unfortunate—one such industry, where research, development processes, and scaling often require a wide range of machines and systems. And, most of the time, as you may well know, the equipment needed for all of these product development efforts can get expensive.

But regardless of cost, businesses have to figure out how to make it work. While buying the instrument might not make sense due to limited funding or dedicated budgets, equipment leasing can be a great way to retain cash and get the devices you need into your lab. Even when a budget is available, it doesn’t always make sense to spend $250,000 on a new LC-MS all in one go. The flexibility to upgrade, pay low monthly installments, and reduce upfront costs all make leasing a welcome alternative to purchasing outright.

Now this is stating the obvious, but if you're interested in leasing, you will have to follow a series of steps to successfully lease the equipment you need, including identifying the equipment you want, obtaining quotes from manufacturers, submitting an equipment lease application, finalizing the lease agreement, and making initial deposits or payments, all before receiving the equipment.

This article will detail the general steps of preparing and submitting an application, the underwriting process, and typical equipment leasing basics.

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How Does Equipment Leasing Work?

Equipment leasing is a financing agreement in which a lessee—either an individual or a company—leases (or rents, as it might be referred to) equipment or machinery from a lessor for a predetermined period of time in exchange for regular payments. In many cases, the lessor is a leasing company, broker, or financial institution (some type of lender: investment bank, commercial bank, etc.).

In this rental agreement, the company leasing the equipment does not own it, but they have the right to use it during the lease term.

Equipment leasing allows businesses to access the necessary equipment without paying the total purchase price upfront. It can be a more flexible and affordable alternative to purchasing equipment outright, and it can help businesses manage their cash flow by spreading the cost of the equipment over a more extended period.

The two primary types of equipment leases are capital leases and operating leases. A capital lease, or finance lease as it is now known, is a lease agreement structured to transfer equipment ownership to the lessee at the end of the lease term. The lessee also typically benefits from some aspects of ownership during the lease itself, as seen in the tax treatment of capital leases.

This type of lease is generally used for long-term equipment financing and is used for equipment that the lessee intends to use for a very long time. At the end of the lease term, the lessee can usually purchase the equipment at a predetermined price, becoming the owner of the equipment.

On the other hand, an operating lease is where the lessor retains ownership of the equipment, and the lessee uses it for a specific period. This type of lease is typically used for equipment with a shorter lifespan or that risks becoming obsolete in the near future. At the end of the lease term, the lessee can generally renew the lease, return the equipment, or purchase the equipment at fair market value (FMV).

If you decide to lease, it’s important to understand the equipment leasing application process.

There should be a period of preparation and due diligence that involves identifying and reviewing your equipment needs, researching leasing companies, learning what types of documentation you will need to submit, submitting an application that includes those documents (e.g., financial statements, etc.), reviewing lease terms, and signing the lease agreement.

In some cases, you may be able to negotiate on certain terms in the agreement. However, this is not considered the norm.

What happens after you finalize the agreement will depend on the status of the equipment. As the lessee, you will typically need to send a purchase order to the manufacturer yourself, who will then begin construction of the item—unless they have one in stock—which can take several weeks or more, depending on turnaround time. However, it’s possible that with some companies that they may submit the PO for you.

When the equipment is ready, it will be delivered to your lab, and the lease payments will begin. By following these steps and working closely with the leasing company, businesses can obtain the necessary equipment to succeed.

How to Lease Equipment: Initial Preparation

It’s important to perform some initial preparation before submitting an equipment lease application. This includes determining your equipment needs, monthly budget, the length of time you need to use the equipment, and more. Answering these questions upfront can save you significant time in the long run.

Identify Your Equipment Needs

You can start the preparation process by identifying your equipment needs and the associated costs. While it’s obvious when pointed out, it’s essential to determine what you need before applying; you might end up wasting your time speaking with a leasing company or financing company when you’re not entirely sure what instrument you want, as the company may not be able to lease what you need.

You can streamline the preparation and application process by identifying your needs and getting a quote from a manufacturer.

Review Your Finances & Budget

Once you’ve got a good idea of the piece of equipment you want, it’s important to carefully review your company’s finances to determine if purchasing or leasing is a viable option for your business, including things like cash flow, credit history, and other financial obligations you may have.

While leasing often results in significantly lower monthly payments than purchasing, it is important to first consider your finances and determine what you will be able to pay monthly. Begin by deciding what you can realistically afford, and then proceed from there, rather than the other way around. Attempting to fit price quotes into your budget can lead to financial strain.

Decide How Long You Need the Equipment

Consider how long you’ll need the equipment. If it’s short-term, you may be better off going with a short-term rental, relying on a service provider, or using a facility that offers equipment sharing. If you need the equipment for a more extended period, it can make more sense to lease.

Renting is typically the most cost-effective option for short-term equipment use—think less than a year. However, leasing can be a more advantageous choice if you plan to use the equipment for two years or longer, as the monthly payments will be much lower than a short-term rental.

Consider the growth of your business; if your company is experiencing rapid growth and change, leasing may be a more favorable option than purchasing.

You may also want to consider a loan or line of credit, which can be a good option for acquiring the equipment you will need for a long-term project. These options can be much more difficult to access, however. Banks are known to be incredibly rigorous in their underwriting processes, with 85% of applications getting denied.

Establish When or If the Equipment Will Become Obsolete

The rate at which technology becomes outdated can vary across different industries. Determine if the equipment you’re interested in will become obsolete sooner rather than later when deciding whether to buy or lease equipment.

You don’t want to make a considerable investment upfront in a piece of equipment that might be replaceable in a year or two. Leasing can provide you with the flexibility to upgrade or replace obsolete equipment without having to make another huge purchase.

Research Different Leasing Companies

It’s important to research various leasing companies to find one that offers favorable lease terms, competitive interest rates, and flexible payment and lease options that align with your needs.

Certain lease lengths, monthly payments, and end-of-lease options will make the most sense, depending on your situation. Researching your choices can help you make a decision that suits your needs best.

However, shopping around as a means of negotiating pricing likely won’t reduce pricing and rates, as many leasing companies will base their pricing on your financials alone and not on the competition.

You will also want to compare the benefits and advantages of leasing types and see whether an operating or capital lease may suit your situation.

While low payments or interest rates may seem attractive, they may not always be the best option. It is important to be cautious of companies that offer unusually low financing rates upfront, as it may be a tactic to lure you in, only to present less favorable terms later.

“If you don’t have several years in business and perfect credit history, someone telling you about 4.75% equipment financing is a waste of your time,” says Smarter Finance USA. While low rates sound great, what you’ll qualify for won’t likely be as low as 5%.

Determine If You Can Lease the Equipment

While the types of equipment that qualify for equipment leasing are almost limitless, only some companies will have what you need or be able to lease the instrument. You will want to figure out if the leasing company you’re interested in can rent the specific equipment you need, which can be done by reaching out to the company and letting them know what you want to lease.

Some companies even specialize in specific industries and equipment types. Finding one that does can make your experience much easier. For example, Excedr specializes in leasing lab equipment to research outfits, including biotechs, biopharma, and other laboratories conducting R&D (typically for, but not limited to, the end goal of commercialization).

Gather Documents & Quotes Ahead of Time

If you have them, gathering your financial statements (balance sheets, income statements, etc.), personal and business references, and tax returns can help streamline the application process.

However, the exact documentation requirements can vary from company to company, so you’ll have a better idea of what you need to send over after your initial meeting.

The Equipment Lease Application Process

Applying for an equipment lease from a leasing company will vary based on the company, however, there are some steps that are similar across multiple businesses. Generally, you will set up an initial meeting, submit a lease application, and go through underwriting.

If you’re approved for leasing, you will receive a lease estimate, negotiate if possible, sign the agreement, make your first payment, and receive your equipment.

The Initial Meeting

Once you’ve selected a leasing company that seems trustworthy (they’re upfront and realistic with you about their rates), you’ll want to reach out and schedule an initial meeting.

During this first meeting, you will learn more about the company’s leasing options, the types of equipment they lease, and more. The leasing company will get to know more about your needs, your business, and its financials. They will also go over the application process step by step.

To set up a meeting, you will have to fill out an online contact form or pre-application form, or call the company directly. Depending on how you can get in contact, you will be asked to provide some initial contact information that tells the leasing company a little bit more about you and your needs. This typically includes your first and last name, company name and industry, the equipment you want to lease, and more.

Gathering Your Documents & Submitting the Lease Application

After the initial meeting, you’ll have a better idea of the documents you’ll need to gather and submit that you haven’t submitted already. This can include financial statements, credit history, tax returns, personal and business references, funding round information, and org charts.

However, the exact documentation requirements will vary from company to company.

The documentation will help the leasing company perform underwriting and decide whether to approve or deny your request. Make sure you have everything in order before applying, as it can help streamline the leasing process.

You will likely communicate with one of the leasing company’s representatives or team members through email or phone, sending the files electronically using a secure link.

Going Through Underwriting & Waiting for Approval

After you’ve submitted your application and related financial documents, your application will be reviewed and financials underwritten.

Underwriting refers to the process of evaluating and assessing the risk of lending money or extending credit to an individual or organization. This can include financial products such as loans, bonds, insurance policies, etc. A lender or insurer typically performs underwriting when an individual or organization wants to secure a loan or insurance. However, underwriting is also involved in equipment leasing.

In the context of equipment leasing, underwriting involves evaluating the potential lessee’s creditworthiness and the equipment being leased. The evaluation determines whether the lessor can extend financing or leasing terms to the lessee.

During the underwriting process, the lessor will review the documents and information gathered from your application, including your credit history, financial statements, and business operations, to assess the risk associated with leasing to your company.

Preparing for underwriting in advance can accelerate the time from applying for a lease to installing and using the equipment in your laboratory.

Receiving A Lease Estimate

You’ll receive a preliminary lease estimate if you’re approved for a lease through the leasing company’s underwriting process. This document should outline the expected costs and terms of a lease based on the information you’ve provided and your financial creditworthiness, as determined by the underwrite. It is not a binding agreement and can be subject to change based on further information or negotiation.

The lease estimate should also include information about monthly payments and any additional fees or associated costs you will be required to pay during the lease term. The estimate may also provide information on the lease term length, end-of-lease options, and the equipment’s residual value at the lease’s end.

Carefully review the lease estimate to ensure that you fully understand the terms and conditions of the lease. Pay particular attention to the total cost of the lease, any additional fees, any financial covenants associated with the lease, and any end-of-lease requirements.

If there are any aspects of the lease estimate that you need clarification on, we recommend that you discuss these with the leasing company (hopefully, that’s us!) or a financial advisor before signing the lease agreement.

It’s important to note that a lease estimate is not the same as an equipment lease agreement, a legal contract that outlines the same information in the estimate, including the terms and conditions of the lease, including the lease term, monthly payments, purchase options at the end of the lease, and any other applicable fees or charges.

Once signed by both parties, a lease agreement is a binding document that outlines the obligations of both the lessee and the lessor.

Reviewing the Lease Terms

After you’ve received a lease estimate, it’s important that you review the terms of the lease agreement carefully, including the interest rate, payment schedule, and any additional fees.

Don’t be afraid to ask questions before you sign a lease agreement. It’s important that you understand the terms before signing and communicate with the leasing company regarding any questions or concerns about the terms.

There is a small chance you will be able to negotiate certain terms in the lease agreement. However, this is not considered the norm in equipment leasing. If negotiation is possible, the terms you can negotiate may include things like the lease term, monthly payments, end-of-the-term buyout options, and maintenance responsibilities.

In most cases, the lease agreement is non-negotiable. Specifically, terms like the interest rate, which the leasing company typically determines based on factors such as the lessee’s credit score and the type of equipment being leased. Other non-negotiable terms may include late payment fees and default clauses.

That all said, the leasing company may be willing to work with you to find a mutually agreeable solution, which can benefit both parties in the long run.

Signing the Lease Agreement

When it’s time to sign a lease agreement, you will have hopefully reviewed it in full and have a strong understanding of the contract’s terms and conditions.

You can sign it either electronically or physically, but the process may vary depending on the equipment leasing company you are working with.

Upon signing a lease agreement, you will typically need to make an initial payment, including a security deposit, the first and last month’s rent, and any other fees outlined in the agreement. After you complete the initial payment, the equipment leasing company will typically schedule the delivery and installation of the equipment.

Funding the Acquisition & Receiving the Equipment

After you’ve completed your initial payment, the leasing company can provide the necessary funds to acquire the instrument, making a payment to the manufacturer or equipment vendor.

The specific timing of equipment delivery may be outlined in the lease agreement, which can vary based on the terms of the agreement, the equipment being leased, and the specific leasing company.

Some leasing companies may require additional documentation or information before releasing the equipment, so it’s important to carefully review the lease agreement and understand the terms and conditions of the lease.

However, the delivery timing will also depend on the manufacturer or vendor involved. Some manufacturers don’t begin constructing the instrument until it has been purchased. In this case, the time it will take to receive the equipment depends entirely on the manufacturer’s turnaround time.

Maintenance & Insurance Coverage

Maintenance and insurance coverages are essential considerations when leasing equipment and are typically included in the lease agreement. If maintenance coverage is not included, the lessee may still be required to maintain the equipment during the lease term.

The details of the maintenance agreement, including who is responsible for maintenance, what types of maintenance are necessary, and how often they should be performed, are typically specified in the lease agreement.

We recommend signing an agreement with a company that includes maintenance and repair coverage or at least provides the option to include it. Service coverage in the lease agreement will protect the equipment if it  breaks down and reduce out-of-pocket expenses when you need to service the equipment. Properly maintained equipment will also generate more accurate and reliable results.

Equipment leasing companies typically require lessees to have insurance coverage for the leased equipment. The lessee’s insurance policy may provide this coverage, or the leasing company may offer insurance as an add-on to the lease agreement.

The lease agreement will typically specify the types and amount of insurance coverage required and may also specify the parties responsible for paying for the insurance coverage.

Equip Your Business for Success & Maximize Your Budget

Equipment leasing is a flexible and cost-effective financing option for companies in the life sciences industry that need to use specialized equipment or machinery but want to avoid the high upfront costs associated with buying equipment outright.

Through leasing, you can access the latest technology and equipment without needing to make a substantial initial cash outlay or continuously invest in upgrades or replacements. Instead of a huge down payment, you can make regular lease payments over the lease term, which helps you manage your cash flow, retain more funding, and preserve capital.

Additionally, our lease agreements can include maintenance and repair services, allowing you to avoid unexpected costs and minimize unforeseen downtime.

When it’s time to apply for an equipment lease, proper lease application preparation and careful consideration of your options can help increase the likelihood you’ll receive approval. Regular communication with the leasing company and adherence to lease terms can also help maintain a positive leasing experience. Following these steps can increase the likelihood of a successful lease application, letting you obtain necessary equipment on favorable terms. Remember to work with a reputable leasing company and take the time to fully understand the lease agreement before signing.

If you're interested in our leasing program, you can inquire to learn more today.