Four Decisions to Make Before Leasing Equipment
Many small business owners say that overhead costs are one of the leading concerns and equipment leasing, or even barriers, to starting or growing a business. Most of those costs are associated with office space and other equipment. Today, however, business owners have the option to lease on a monthly or annual basis virtually anything from computer software and printers to delivery vans and specialized production machinery. There are many advantages of equipment leasing – tax, operating, and cash flow just to name a few.
Equipment Leasing “Renting”, as opposed to purchasing outright, can deliver important benefits to small business owners. First, leasing creates greater financial flexibility by enabling you to get what you need for your business without having to pay for it up front. Rather than having to pay thousands of dollars all at once, you will have a manageable payment, which frees up cash and credit to invest in growth and other priorities. Moreover, since you do not have to wait to buy critical equipment until you can afford it, leasing the equipment can help you move quickly to take advantage of emerging business opportunities and help preserve your competitive edge.
Second, in a small business environment of continuous innovation, access to the latest technology can be integral to the long-term success of a company. Leasing enables business owners to update equipment as necessary, without having to worry about disposing of, and accounting for, depreciated older technology.
Is Equipment Leasing Right For You?
While there are definite advantages to equipment leasing, there are several considerations you should take into account when determining the right arrangement for your particular needs.
When to lease equipment – The decision to buy or lease is specific to each piece of equipment and owner. Generally, factors worth examining when evaluating whether to lease or buy include cost, availability of capital/credit, nature of equipment and how long equipment will be needed. For example, in some instances it might make sense to invest in certain equipment (e.g., heavy machinery that will likely not change much) versus computer hardware, which requires frequent enhancements and updating.
Equipment Leasing or Renting of leased equipment – In a true or operating lease, your rental payments do not entitle you to any rights or ownership interest in the equipment. You only have the right to use the equipment until your term in the true lease contract is over. The upsides of a true lease are lower monthly payments and the potential to have the lease qualify as a tax deductible operational expense.
On the other hand, a financial lease or capital lease is used to finance the purchase of the equipment, allowing you to spread out payments over the equipment’s life cycle rather than paying in one lump sum. At the end of the agreement, you will own the equipment.
Terms of equipment lease – Equipment leases can be structured to include various conditions regarding installation, essential maintenance and training as well as options for when the lease expires (e.g., extend, purchase at either fair market value or fixed amount) or simply return what you have leased.
Selecting the right leasing partner – Credit history requirements and other criteria (e.g., age of company, type of business, amount of lease) differ by leasing company and can impact terms and pricing. You should compare lease packages from several different companies to ensure that you are getting the best deal possible. Once you select a provider, be prepared to negotiate.
The factors outlined above are essential to consider, and understand, prior to leasing any equipment. Make sure that the lease best serves your business needs. Do you have any suggestions for leasing equipment? Also consult with you CPA or experience bookkeeper in the tax advantages of equipment leasing.
Thinking of an equipment leasing or equipment financing, check out Apple Capital Group, Inc. Apple Capital group is an equipment finance lender based in Jacksonville, Fl. Give us a call! This article is a courtesy of Apple Capital Group, Inc., if you like the articles, please share it to friends and PLEASE click the google+1 so we can measure how it is helping this small business community! Thank you!
August 30, 2011 equipment financing, equipment leasing, Today's Business 86 Read more >