Equipment Leasing – Some Advantages to Leasing Equipment
Equipment leasing is a form of business equipment financing that takes some of the risk off the end user of the equipment and frees up capital (cash) for the end user. There are some pros and cons to leasing equipment, we will discuss these below.
What is Equipment Leasing?
Commercial equipment financing through leasing is an option that is best-explored by the business that is just starting out and needs ready access to its cash in order to get its operations off the ground. Leasing the equipment is like renting and does not require a large down payment or the credit worthiness required when buying the equipment. Also, lease payments are usually less than a loan payment for the same equipment.
When Leasing Equipment Might be the Only Option
If a business buys its equipment using standard equipment financing, then that business will need to have solid credit in order to qualify for the loan and will also need to have the cash available for a down payment. The equipment loan will need to be collateralized. Often times the equipment can be used as collateral, but in some cases additional collateral is necessary. For these reasons, many businesses are simply unable to finance the equipment and leasing it is the only option.
Advantages of Leasing
Leasing is a particularly sound option when the equipment in question is high tech or electronic in nature. Computers, GPS systems, and peripherals are all good candidates for leasing because they tend to become obsolete very quickly. Leasing instead of owning equipment protects the end user from obsolescence, as the equipment can simply be exchanged when the lease is up.
There are also tax advantages to using a lease as your form of commercial equipment financing. The IRS allows you to deduct lease payments from taxable income, which will be advantageous come April.
The Disadvantages of Leasing
The disadvantage of leasing the equipment as opposed to buying is that the end result for buying is that the equipment is eventually owned. Over a long useful life for that equipment, this can make a big difference in the profitability of your company. The business can end up spending a lot more than it would have had it had used traditional equipment financing. Therefore, in order to evaluate whether or not to buy or lease equipment, one should look at the business’s current financial standing, present and future cash flow needs, life of the business and the equipment in question in order to decide upon which option is best.