Paying for business equipment upfront is often too much for many small firms to handle. Yet almost every small business needs equipment, whether it’s computers, machinery, or even an office space. Leasing is one way for companies to get the equipment they need without the huge initial outlay of cash required for purchase. And it’s a popular choice too. The Equipment Leasing and Finance Association reports that four of five businesses lease at least some of their firm’s equipment.
Leasing essentially means renting equipment from a lender. There are typically more options involved with leasing than the term “renting” implies, however. A lease is set for a specific amount of time and when that term is up, there is often the choice to buy the equipment for an additional chunk of change, or leasers renew their lease terms. For certain products, there is also the option to turn in the old equipment and keep leasing newer models. And of course, at the end of the term, business owners can always return the equipment and end the contract.
The biggest advantage to leasing equipment is the ability to use equipment without paying the full cost upfront. It gives business owners the chance to finance their most expensive needs. This leads to another advantage of being able to keep the working capital free for business-growing necessities. Another benefit is the option to constantly have the newest and best models without paying full price for each. Leasing also allows small businesses the chance to deduct their monthly payments as business expenses on their taxes.
Leasing as a means of eventually buying the equipment is a much more expensive venture. Leasing companies are naturally trying to make money on their service as well, so they will charge more for monthly payments than one would expect on a traditional equipment loan. Also depending on the financial strength of the business, leasing may require the owner to secure the contract with his or her own personal assets. This can be a risk if the business hits a fiscal rocky patch or fails completely.
While there are upsides and downsides to consider, equipment leasing remains a viable option for most businesses.