What are the Different Advantages and Disadvantages of Leasing?

How can the advantages and disadvantages of leasing help you make good choices for your business?

advantages and disadvantages of leasingStarting a business is one of the most critical times of how your business runs over time, because the decisions you make as far as your start will severely impact quality of equipment, finances, employees, and more in the future. From how you set up your finances to who you hire and what services you get and equipment you acquire, every initial decision you make is has both short term and long term effects.

It doesn’t help that starting a business means your company still needs time to make money, meaning your budget is extremely limited and most likely based off of your own capital. Getting your finances in order is perhaps most critical at the start, and many business owners like to do so while avoiding loans and other ways they are forced to owe someone else.

Of course, conditions vary for businesses, and many have to make choices that others don’t because of circumstances, but all new businesses need to have methods that keep their finances in order. One such concept is leasing, because with a lease, business owners don’t have to pay a high upfront price to get their equipment or have to deal with an interest rate.

Examining the various advantages and disadvantages of leasing tallied up can help business owners figure out when they should lease and how exactly a lease can work to their advantage.

When you should Lease and when you should Purchase

Leasing and purchasing are both avenues that businesses use; it’s perfectly acceptable for a company to lease some equipment and buy other hardware. After all, there are benefits to purchasing if you can do so, simply because you get the convenience of owning the hardware for the full duration of however long it lasts.

This is where equipment because a liability; over time, all hardware decays, and once it reaches that point where it breaks down and repair is the better choice, you have to pay to replace that equipment.

This is no issue for smaller hardware or if you just need to get a few pieces of equipment, but in cases like restaurants that have expensive ovens or fitness centers with bulky, pricey treadmills, paying to replace your equipment can cost you.

Basically, the main factors to purchasing equipment are (1) whether you can handle purchasing the equipment with the capital you have and (2) whether you have enough of a budget to pay for equipment if and when it needs to be replaced. Considering businesses take a while to make a decent profit, it’s best not to buy equipment that’s fairly expensive as it can put you into serious hot water financially.

Advantages and Disadvantages of Leasing

There are many reasons to lease your equipment, mainly because it takes the stress off of you as far as handling your equipment issues. You don’t have to pay huge, upfront payments: it’s just a low monthly rate, and the equipment is loaned out to you.

Unlike a loan, where any deal you get comes with interest, lease rates are flat, meaning you pay the same amount from day one to the end of the lease. Leases have provisions in place for you as well, so if your leased equipment breaks down, you can get it taken care of you without having to pay a high price to replace the hardware.

Leasing also gives you tax benefits, so you get money put in your pocket every year for having a lease, and depending on the lease contract, there are many other benefits spread out in the lease, like getting upgrades on your hardware. This is where the advantages and disadvantages of leasing can come into play: the fine print of the contract can end up hurting you or helping you, depending on the lease you get.

Businesses want a good lease, but of course good leases look different for some businesses depending on how old the company is and what equipment they are leasing. Getting a good lease means you have to know what a good lease is for you: how much do you want to pay for a lease rate?

What is a good contract period for you, and how important are upgrades and repair rates? The advantages and disadvantages of leasing all stem from the contract itself, so if you know what you want out of a lease and make sure you don’t settle until you find that lease you want, your life could get much easier. To learn more about the advantages and disadvantages of leasing, click here.