As a business owner, you know that purchasing and maintaining equipment can be quite expensive- and as soon as you invest in something it’s not long before it becomes obsolete, and there’s something better to replace it. Since owning and operating equipment is so expensive, many business owners lease instead.
Leasing offers a variety of benefits that ownership does not. These include lower monthly payments spread out over time instead of having to come up with a large sum right away. Also, most commercial equipment leases include service agreements/add-ons, offering peace of mind to the business owner and eliminating the need for in-house tech support.
If you require new equipment/tech, but it’s not in the budget, you may want to consider leasing. This allows you to make payments instead of having to come out of pocket with the cash upfront. Then, once the lease is over, you can return it or buy it for a price that considers how much has been paid over the lease term and the appreciation/depreciation of the equipment.
Defining Equipment Leasing
Equipment leasing is a form of financing where you are renting equipment instead of purchasing it outright. The lease will last for a certain period and once that time is up, you usually have a few options:
Equipment leasing is not the same as equipment financing. In the case of equipment financing, you take out a loan to purchase the equipment and agree to pay it off within so many months. The equipment is collateral. If you don’t pay, the lender can seize the equipment. Once you pay it off, the equipment is yours.
If you choose to lease the equipment, you do not own it at the end of the term. You will be paying interest and fees and you may have to pay extra fees for repairs, insurance, and maintenance.
Leasing is usually more expensive in the long run, but if you don’t have the cash to spend outright, it can be a way for you to get the equipment you need.
How does it work?
If you opt to lease your equipment instead of purchasing it, you enter an agreement with the owner/vendor of the equipment. They will draft an agreement that details how long the lease will be and how much you will be paying each month.
You will then use the equipment until the lease expires. There may be some situations in which you can break the lease- they will be spelled out in the contract. However, most of the time, leases cannot be canceled and if you can, there’s a huge penalty fee. Once the lease is over, you will typically have the option to buy it at the current rate or lower, depending on the vendor.
Rates vary based on the company. Your business credit will also be factored into the rates you are quoted. If you are at high risk, your lease payment will be higher. These days, most equipment leases can be approved within minutes online. Most leasing companies are industry-specific, so you’ll want to do your research to find the right option.
Typically, lease terms are for 3, 7, or 10 years- depending on the equipment. Once again, it’s important to understand this is not the same as a loan. It will not appear on your credit report and keep you from being able to borrow.
Equipment Leasing Benefits
For small businesses that are short on cash, equipment leasing offers several benefits. Of course, it’s important to note that all leases are not equal and there are lots of ways you can finance a lease. Below are a few benefits to equipment leasing:
Cost-effective: you typically don’t need a large down payment.
Equipment can be updated: you won’t be stuck with obsolete/outdated equipment
Easier to scale: if you need to upgrade, you don’t have to sell your current equipment and shop for replacements
May offer tax credits: often, equipment leases offer tax credits- check with Section 179 of the IRS code.
If you need equipment, but don’t have the cash to invest, consider equipment leasing. It can help you get the equipment you need so that you can get the job done. This will help you keep your cash flow going. Contact Achieve Capital Advisors to learn more about how equipment leasing can benefit your business.