Is Equipment Leasing The Right Choice For You?
Not all small businesses have sufficient start-up capital. In addition, not all established businesses have enough money to support all expenses necessary for expansion.
The question is, Is equipment leasing the right choice for you? To answer this question, let us consider the benefits of leasing business equipment over purchasing.
But first, what is equipment leasing?
Business equipment leasing simply means renting devices, machines or vehicles necessary for the business. Instead of obtaining a loan to purchase equipment, leasing lets you use the equipment and start your operations without the need for down payment or cash payment. Payment can be done in monthly installments or annual payments depending on the type of lease you’ve obtained and the terms of the equipment leasing company.
What makes equipment leasing advantageous over purchasing?
First, it doesn’t repress cash flow. With purchasing, a business is forced to give up a huge portion of its finances to buy expensive equipment. It can take some time before a business can regain the amount of money that has been used for buying equipment.
On the contrary, equipment leasing allows a business to start manufacturing and running the business without the need to dispel big cash. Thus, there would be sufficient cash available to support other areas of the business.
Types of Business Equipment Lease
Equipment leasing presents different types of leases for every business. Businesses that operate on a seasonal basis can avail of a “skip lease” where skipping payments during slow seasons are allowed without any penalties. There is also a type of lease called “step-up” lease where businesses who are just starting up can defer lease payments for the first two months until the business gains footing.
These are just two examples of leasing terms are available for small business owners. All equipment leasing companies offer varying types of lease that entrepreneurs may consider before making a choice.
Equipment Leasing Benefits
Yes, business equipment lease payments are considered as a monthly expense which makes it a hundred percent tax deductible. Every business owner who leases equipment should remember this important fact and inquire from their lawyers or accountants on how they can avail the tax deduction.
Another great advantage about leasing business equipment is that it lets you keep up with technology. Machines and equipment are constantly and continuously enhanced. A particular device can be outdated or get obsolete in just a few years.
If you purchased the equipment, it wouldn’t be practical to buy a new one and throw out the money you spent on that equipment each time a better version is introduced in the market. Meanwhile, if you leased the equipment, you can easily trade your current equipment and replace it with the latest model without hassle.
It is also worth mentioning that applying for an equipment lease is so much easier than trying to obtain a loan. Commercial banks and lending institutions generally have strict policies and procedures before granting a loan approval. In most cases, an excellent credit history is required to qualify. A business plan must also be presented in order to get approved.
Equipment leasing companies do not impose such requirements from their clients. Usually, leasing companies would only consider the last six months of the owner’s credit history or the business credit to approve an application. This makes business equipment leasing an ideal financing option for entrepreneurs who need immediate assistance.
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