What is equipment leasing and why should I do it?
If your company’s computers look like this one here…you may want to consider upgrading asap – and equipment leasing is very likely the best way to do it.
Chances are you probably have workstations that are slightly more updated than this old timer pictured here (at least we hope you do!)
The point is this: if you want the latest versions of any type of business equipment, leasing and financing your equipment instead of making a cash purchase is a smart decision.
There are so many advantages to leasing instead of purchasing, which is why equipment leasing is the preferred choice for smart business owners who want to run their businesses as efficiently as possible.
What Is Equipment Leasing?
Equipment leasing is when a leasing company allows you to use a piece of equipment for a specific period of time for your business. At the end of that period of time, you can turn in the equiment and start anew lease with new equipment or buy out the lease and the equipment is then yours. This is differs from a rental agreement where at the end of the rental agreement, the equipment is simply returned to the rental company.
With leasing however – and depending on the terms of your lease – at the end of an equipment lease you have options. In some leases, you can buy the equipment out for one dollar. In other cases or you can turn the equipment in and get a new version and begin a new leasing term with brand new equipment.
This makes equipment leasing extremely flexible for all kinds of business types and sizes.
For example, let’s say you have a large commercial trucking business. And lets say you suddenly need ten new trucks due to a large contract your contract your company just won. By leasing your trucks, it allows you to conserve cash because you will not have to deplete cash reserves to get the trucks you need. And the more cash you can conserve, the better for your business.
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However, before you enter into a leasing agreement, there are some things you need to consider first when you are first trying to get a lease. We discuss a number of them below.
What Can You Lease?
You can basically lease any piece of equipment for your business – up to a certain dollar amount. If your business is just getting started, you might be entitled to a variety of small business loan programs to help you get the equipment you need. The SBA has many resources for small businesses and they may be able to help you if you are just starting.
Or better yet, you can simply apply for a lease to see how much you qualify for.
If you have a reliable source of income, a good relationship with a bank and your business is doing well, you may qualify for traditional financing through a bank to fund your equipment lease. Banks are always good places to start – but with credit still tight, many banks will deny your request even after multiple attempts.
With the credit crisis still looming, you can’t blame the banks. They just have safeguards in place now to keep protect themselves in case something bad happens to your business.
Although no one wants that to happen, it’s simply the financial age we now live in.
Although you may not be able to avoid the rejections from traditional banking when applying for your loan to lease the equipment you want, the better you are at picking the right type of equipment that is essential for your company to start, the better it will be for your business.
If at all possible, try to pick the equipment you need at first, and once you are up and running, then consider leasing additional equipment that will make your business run even better. This is a good strategy to start out with – there’s no need to lease equipment that’s non-essential to your businesst.
If you are an established business, you likely know exactly what kind and brand of equipment you need to lease. Even here – don’t extend yourself by leasing equipment you think you may need, but in the end do not. Although you may be tempted to get all the latest whiz-bang gadgets for your business though a lease, get the essentials first and then branch out as your business continues to grow and prosper.
Is Equipment Leasing For You?
In general terms, when answering the question – what is an equipment lease – an equipment lease is simply just another term for a loan agreement. Although an equipment lease has a lot more flexibility than a traditional loan – it is still a binding agreement between two parties for the leasing of a piece of equipment.
An equipment lease typically has flexible terms as well – meaning at the end of the lease term, you can get a new lease to replace your old lease. When you finance something, you are essentially paying for that item until you’re done with your lease term.
You can choose a buyout option as well, whereby you buy the item for its current cost or you can simply replace that equipment with a newer version. It will all depend on what you need at the time.
When you purchase outright or even purchase and finance a piece of equipment, you are stuck with it. At the end of your purchase finance term, you cannot exchange it for a different one after your term has ended. This is why equipment leasing and financing is such a smart way to go.
How Much Do You Need To Start
Like everything else in life, you should plan ahead when you are trying to figure out what is equipment leasing and what it can do for you.
At its base level, you want to make sure you can make your monthly payments based upon the cash flow of your business. You’ll also want to still have enough cash left over to save for other things in your business, like new additions or more employees.
If you always lease your equipment, you will always have the best of the best when it comes to your equipment. You will not be running off of old technology and can upgrade to the latest technology when it comes out in many cases.
It is a lot like trying to operate a business on Microsoft Dos compared to Windows 7. If you have workstations in your office like the one pictured above, it simply cannot be done.
If you do need a lot of equipment for your business to get started, like a restaurant might need a ovens, dishwashing equipment, chairs, coatracks and kitchen supplies, you are still better off considering restaurant equipment leasing rather than buying them outright with cash.
This way, you‘ll have a much easier time dealing with any new technology when it arrives on the market, versus being stuck with the old technology if you choose to purchase.
Technology is advancing at a rapid pace and even in less-technology driven businesses such as restaurants, there are always new items which can help your restaurant run more smoothly. Such technological advances as auto-shut off stoves are just one example of how better technology will always beat old technology. And if you paid cash for your old stove when the new technology comes out, you won’t be able to upgrade easily..
So whether you are looking to acquire office equipment, medical equipment, restaurant equipment or computer equipment, consider leasing and financing instead of purchasing.