Like it or not in this fast-paced business world, whether you need computers, desks, machinery, or even vehicles to get your small business started or to support its growth, the cost to acquire and maintain these items can easily overwhelm your bottom line. However, there’s another, potentially more cost-effective option—leasing.
Leasing offers many benefits beyond monetary expenditures. Rather than having to weigh the trade-offs of various items for a long-term investment, you can get the right equipment for a specific need.
Leases can be negotiated to conform with project-specific or time-based needs (e.g., month-to-month, seasonal, or annual). Routine maintenance and upkeep can often be included in your lease payment, freeing you from another responsibility and ensuring the equipment is always ready to use when you need it.
Many small businesses find leasing a good way stay ahead of technology when it comes to computers, copiers and other systems. Why allow your growing business to be hamstrung by aging tools when you can replace them easily with the latest technology?
Leasing also saves time. In addition to not having to find financing for a new equipment purchase, equipment leasing companies are typically staffed with experts who are up to date on both the equipment and the specific models that will best meet your needs.
Also consider leasing’s potential costs. For example, the lifetime cost of the asset is generally going to be higher than if you purchased it. You also forgo any ownership in the equipment, which can be especially costly if you rely on the equipment and find at the end of the lease that the equipment is too expensive to purchase outright. And while lease or rental payments on assets used in your business are fully deductible, they may not offset the tax benefits of depreciation deductions on owned equipment.
Fred S. Steingold, writing for http://www.NOLO.com (Law for All), lists pros and cons.
Advantages of Leasing Equipment:
Less initial expense: The primary advantage of leasing is that it allows you to acquire assets with minimal initial expenditures. Because equipment leases rarely require a down payment, you can obtain the goods you need without significantly affecting your cash flow.
Tax deductible: Lease payments can usually be deducted as business expenses on your tax return, reducing the net cost of your lease.
Flexible terms: Leases are usually easier to obtain and have more flexible terms than loans. This can be a significant advantage if you have bad credit or need to negotiate a longer payment plan.
Easier to upgrade equipment: Leasing allows businesses to address the problem of obsolescence. If you use your lease to obtain items that may be outdated in a short period of time, such as computers or other high-tech equipment, a lease passes the burden of obsolescence onto the lessor.
Disadvantages of Leasing Equipment:
Higher overall cost: Leasing an item is almost always more expensive than purchasing it. For example, a 3-year lease on a computer worth $4,000, at a standard rate of $40/month per $1,000, will cost you a total of $5,760.
You don’t own it: You don’t build equity in the equipment. Unless the equipment has become obsolete by the end of the lease, this lack of ownership is a significant disadvantage.
Obligation to pay for entire lease term: You are obligated to make payments for the entire lease period even if you stop using the equipment. Some leases give you the option to cancel, but early termination fees always apply.
If these factors add up to a decision to lease, consider how long you anticipate needing the equipment. If you expect it to be for a long time and want to establish equity in the equipment, ask about building a purchase option into the lease so that a portion of your payment is credited to the purchase price. And make sure you fully understand what you’re signing. It may be helpful to have your attorney examine a lease before completing the transaction.