Why is leasing your more expensive equipment your best option? Is there really an advantage of capital lease options?
One of the hardest parts of dealing with managing anything- a household or a business- is the finances. Keeping track of all of that money that goes in and out of your company or home is tough enough, but when you have to deal with large expenses that are a necessity, it tends to put you in hot water.
This is especially the case with the equipment need in a business, which is normally fairly vast. If you obtain a service from any company, look at the amount of equipment they have and how much that cost them just on the initial purchase, never mind maintenance costs.
Businesses like fitness centers, machine shops, restaurants, truck delivery services, and farms have to pay thousands upon thousands of dollars, normally just for one or two machines, and this kind of money is not easy to come by.
If you’re starting a business and are having trouble purchasing expensive equipment (also called capital equipment), it may be useful for you to consider the advantage of capital lease solutions.
Many businesses use leasing as a way to get out of those large payments and avoid the issues of purchasing capital equipment.
The Issues with Purchasing Capital Equipment
The main and obvious problem business owners deal with when trying to purchase capital equipment is that they can’t afford to purchase their capital equipment. In other words, their business is just starting, they have a mountain of expenses to look after, and adding that capital equipment fee right on top just makes the expenses worse for the business owner.
There are some workarounds depending on how expensive your equipment is: when you purchase equipment, you get to claim it as a business asset, giving you some funding for it. Generally, even that is not helpful when you’re dealing with purchasing your capital equipment.
You’d have to take out a bank loan, and that can be very risky and give you more problems than advantages. A bank loan, like a lease, is a contract, but you are loaned money instead, and the two big factors are the amount you loan and the interest rate.
The amount you loan will be large if you’re dealing with capital equipment loans, and even if your interest rate is low (usually based on credit and other factors) it’s still a small percentage of a large number.
This means you’ll accumulate interest fairly quickly, and that’s money you absolutely have to pay back to the bank. With all of the expenses you’ll be dealing with in the duration of your business, having a large bank loan with a quick growing interest rate can be devastating.
Advantage of Capital Lease on Equipment
Many business owners do end up getting a lease at some point, especially if they’re dealing with capital equipment, simply because it means they have more room to breathe when it comes for paying off expenses.
Here’s how a lease works: you get a contract set up with detailed terms, and once you agree, the equipment is loaned out to you for the pre-determined contract period in exchange for you paying a monthly rate. This rate is both low and flat, meaning you don’t have to deal with those large, up-front payments or an accumulating interest rate giving you a headache.
Leasing contracts normally last a few years, and with a lease you are paying to have equipment in your business during that time, not for the equipment itself. That means there are other benefits attached to the lease itself, like getting your equipment repaired if it breaks down instead of having to pay large fees to replace or repair the equipment.
Plus, leasing offers you tax benefits, putting money in your pocket at the end of the year. Throughout a lease contract, all you’ve got to do is pay that flat rate, and the equipment is in your business, no catch or strings attached.
Also, at the end of a lease, you don’t have to just return the equipment; you can renew the lease, normally with the option of an equipment upgrade.
The advantage of capital lease on equipment is that you don’t have to worry about expenses giving your business trouble, and you get an excellent service and good, well-running equipment in the process. To learn more about the advantage of capital lease solutions, click here.