Short on cash, but need equipment? Consider leasing what you desire. Leasing equipment could be a better alternative to buying, depending on your situation and needs.
Leasing is common practice in business today. Over the last two years, equipment leasing has grown approximately 20 percent, according to recent research by the U.S. Small Business Administration (SBA). And 8 out of 10 U.S. companies lease all or part of their equipment, reports the Equipment Leasing Association.
Leasing is appropriate for just about any company at any given stage of development. For set-up businesses with no earnings, smaller leases–those of less $100,000 –may be better handled on the private credit of the owners–if they’re willing to make the monthly payments.
Comparing Leasing to Buying When you purchase a piece of equipment or vehicle, you usually need to pay in full for it by using cash or by funding the balance. When you end paying for it, you own it.
Equipment leasing, on the other hand, is essentially financing. The lending company buys and owns the equipment and then “rents” it to a company at a flat monthly rate for a set number of months. At the end of the lease, the business has several choices. It can purchase the equipment for its fair market value (or a fixed or predetermined amount), continue renting, return it or rent new equipment.
With a lease, you really only pay for utilizing the gear. But at the end of the lease period, you may wind up owning nothing. Why lease? The answer is simple: By leasing equipment, you leave money in the bank that may be utilized for other purchases. You don’t have to pay out as much each month since lease payments are usually smaller than regular loan payments.
However, remember that a lease isn’t cancelable like a bank loan or alternative debt. You’ll be able to sell the equipment and pay off the loan, or even refinance it, in the event you must get out a conventional loan. With a lease, you normally need to pay off the lease in full. So you need to be sure when you enter into a lease, you make the payments.
What types of gear make the most sense for a small company to lease? According to research by the SBA, the most typical items leased are trucks, computers, and office equipment and vehicles.
Advantages of Leasing Leasing gear provides a broad array of benefits, from consistency with expenses to increased income. But possibly the most critical benefit of leasing is the capability to keep up to date gear. Leasing enables you to simply and affordably add gear or update to a whole new piece of machines to fulfill future needs. This allows you to transfer the risk of being caught with obsolete equipment to the leasing company.
Here are some other benefits of leasing:
— Alternative to lending – Leasing is essentially an alternative to conventional financing and may be perfect for companies not able to obtain business loans.
— 100-percent “lending” – Oftentimes, no down payment is required by leasing. This permits you to “finance” an entire purchase, including software, hardware, consulting, maintenance, freight, installation, and training costs.
— Ease and benefit – Applying for a lease is not difficult, and lease arrangements could be structured to fulfill your individual requirements. Equipment leases can range from $ 2,000 to $ 2 million. For smaller sums, you get a final decision within days–generally with no financial reports or tax returns needed and can complete a short program. Leases for more than $100,000 typically require comprehensive financial advice from the business, and the leasing company runs a more thorough credit analysis than it would for a smaller
— Flexibility – Lease terms range from 12 to 60 months, determined by the equipment type. Most leases may be structured so that payments are made with managing as an alternative to capital funds. This could remove or reduce capital budget delays. Leased gear could be purchased after if capital becomes available. Plus, a portion of the lease payments can be credited toward the purchase of the equipment.
— predictable payments, Fixed – Having frozen lease payments allows you to correctly forecast the effect of equipment expenses on your own cash flow.
— Conserves working capital – Leasing conserves your working capital by requiring only a minimum initial outlay of cash.
— Tax Advantages – Operating leases are generally treated as a 100-percent, tax-deductible business expense paid from pretax gains instead of after-tax gains.
— Protection against inflation – Lease payments are based on the dollar’s present value. And unlike bank lines of credit with fluctuating rates, your payments are fixed regardless of what the results are to the market tomorrow, making it simpler to forecast, budget and grow.
When leasing equipment working with a Leasing Companies, keep in mind that the company selling the equipment simply makes an immediate referral to a leasing company with. And, usually, the business selling the equipment works with greater than one leasing company. So be sure to get quotes from several leasing companies. It is also recommended to ask for referrals from friends as well as business associates.
Additionally, be sure to comprehend with whom you’re dealing. He or she works with, are you talking to an agent–the person who only constructions deals, then gets them funded through the leasing companies. Or are you really coping with a leasing company that is really putting its own funds at stake?
Agents could be advantageous because they can assist you to find the best leasing alternative for your needs and have useful insight about the leasing market. But as when coping with any kind of salesperson, you’re responsible for managing the due diligence. Do your own homework to ensure you negotiate the most favorable lease deal for your organization.