These days it seems like just about everything can be leased. Which might have you wondering if equipment leasing would be a good option for your business.
Choosing to purchase equipment instead of leasing depends on your industry and the type of equipment you’re considering. Approximately 80% of U.S. businesses lease some or all of their equipment, showing that leasing is a popular choice. Given the demand, you’ll have options when it comes to choosing a leasing firm.
For small startups that only need a few lower-cost items, purchasing equipment outright can make financial sense. However, if you’re running a larger business that needs dozens of new computers or looking to purchase a high-ticket price item, leasing may have significant benefits.
Equipment leasing can be great for your business if it helps reduce monthly payments compared a loan for large purchases. It can also be useful for getting a fixed financing rate instead of a variable rate. Occasionally, leasing will provide tax advantages to your business which helps conserve working capital. Another reason to consider leasing is to avoid large down payments that traditional loan financing requires.
When looking at lease terms, there are several questions you need to answer. These will help determine if the lease will provide long-term benefits for your company.
- Who is financing the lease? It’s ideal to have your lease financed by the company providing the equipment. Some companies will outsource the financing, which complicates your lease.
- How long has the company been operating? You only want to consider leasing options from established businesses. If the company has been in operation for fewer years than the terms of the proposed lease, it’s best to proceed with caution.
- What are the upgrade options? Technology advances rapidly. If the equipment you are considering for lease might become outdated before the end of the term, you’ll want to have options for upgrading. It’s also possible that your business will change drastically due to circumstances outside your control. Having trade-in options can prevent you from leasing equipment that has become obsolete.
Once you have satisfactory answers to these questions, you’ll want to study the lease agreement carefully. Determine the overall cost of leasing. Then compare that amount to the total purchase price. The financials should give you a clear picture of the potential benefits of equipment leasing.
The right time to lease equipment is when it helps your business achieve its goals.