Short on cash, but need equipment? Consider leasing what you want. Leasing equipment may be a better alternative to buying, depending on your situation and needs.
Leasing is common practice in company now. Within the last two years, equipment leasing has climbed about 20 percent, according to recent research by the U.S. Small Business Administration (SBA). And 8 out of 10 U.S. businesses lease all or part of their equipment, reports the Equipment Leasing Association.
Leasing is appropriate for just about any business at any given stage of growth. For setup businesses with no revenues, smaller leases–those of $100,000 or less –may be better handled on the personal credit of the owners–if they are willing to make the monthly payments.
Comparing When you buy a piece of vehicle or equipment to Purchasing, Leasing, you usually need to pay in full for it by funding the balance or by using cash. When you finish paying for it, you possess it.
Equipment leasing, on the flip side, is essentially financing. The lending company purchases and owns the equipment and then “rents” it to a business at a flat monthly rate for a set number of months. At the conclusion of the lease, the business has several alternatives. It can buy 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 actually only pay for using the gear. But at the end of the lease period, you could wind up owning nothing. So why lease? The answer is easy: By leasing equipment, you leave cash in the bank that may be used for other purchases. Since lease payments are usually smaller than regular loan payments, you don’t have to pay out as much each month.
Yet, remember that a lease isn’t cancelable like a bank loan or other 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 standard loan. With a lease, you generally must pay off the lease in full. So you’ve got to be sure when you enter into a lease you make the payments.
So what kinds of gear make the most sense for a small company to rent? According to research by the SBA, the most typical items leased are computers, office equipment, and trucks and vehicles.
Advantages of Leasing Leasing equipment offers a wide array of benefits, from consistency with expenses to increased cash flow. But possibly the most important benefit of leasing is the capacity to keep up to date gear. Leasing enables you to easily and affordably add equipment or update to an entire new piece of machinery to fulfill future needs. This enables you to transfer the chance of being caught with obsolete equipment to the leasing company.
Here are some other benefits of leasing:
— Choice to financing – Leasing is essentially an alternative to traditional funding and can be great for businesses not able to acquire business loans.
— 100-percent “funding” – In many cases, 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 convenience – Applying for a lease is not difficult, and lease arrangements could be structured to satisfy your individual requirements. Equipment leases can vary from $ 2,000 to $ 2 million. For smaller amounts, you get a final decision within days–usually with no financial reports or tax returns needed and can complete a brief application. Leases for more than $100,000 generally need in-depth financial information from the business, and the leasing comprehensive credit analysis than it is conducted by company conducts a would for a smaller
— Flexibility – Lease terms range from 12 to 60 months, depending on the equipment type. Most leases can be structured so that payments are made with operating instead of capital funds. This may eliminate or reduce capital budget delays. Leased gear can be purchased after if capital becomes available. Plus, a portion of the lease payments could be credited toward the purchase of the equipment.
— Fixed, predictable payments – Having frozen lease payments enables you to correctly forecast the effect of equipment expenses on your income.
— Conserves working capital – Leasing conserves your working capital by requiring only a minimum initial outlay of cash.
— Tax Advantages – Operating leases are usually treated as a 100-percent, tax-deductible business expense paid from pre tax gains instead of after-tax gains.
— Protection against inflation – Lease payments are predicated 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, which makes it simpler to grow, forecast and budget.
Working with a Leasing Companies When leasing equipment, remember that an immediate referral is made by the firm selling the gear simply to a leasing company with which it does business. And, normally, the company selling the equipment works with more than one leasing company. So make sure to get quotes from a number of leasing companies. It is also recommended to request referrals from company associates as well as friends.
Also, ensure you comprehend with whom you’re dealing. He or she works with are you talking to an agent–the man who simply constructions deals, then gets them funded through any of the leasing companies. Or are you really coping with a leasing company that’s actually putting its own funds at stake?
Brokers may be beneficial since they can help you to find the best leasing alternative for your requirements and have invaluable insight about the leasing marketplace. But as when coping with almost any salesperson, you’re accountable for handling the due diligence. Do your homework to ensure you negotiate the most favorable lease deal for your organization.