Are you looking for a way to equip your business? Well, before you make any costly decision, why not consider equipment leasing for small businesses?
By definition, equipment leasing for small businesses is a way of acquiring the use of vehicles, machinery, or any other equipment you need in your business operation on a rental basis. This in turn saves the business owner the need to buy this equipment while starting out his (or her) business. That’s to say the ownership of the equipment rests in the hands of the leasing company, but the business owner enjoys its actual use without necessarily buying.
Generally speaking, you can lease absolutely anything–from heavy machinery, computers, and complete offices to some of the minor accessories that you are planning to use in your business. However, your decision on whether you should buy or lease the equipment you need, actually depends on the type of business that you are setting up or the overall cost of the equipment you need.
For example, if you’re planning on starting a business that needs only one computer, then there’s more sense in buying the equipment instead of leasing. On the flip side, if you’re planning to open a business that will require a large number of employees and dozens computers, you may also have to look more into leasing than buying.
Types Of Equipment Lease
Basically, there are two types of equipment leases: Finance leases and true leases.
Best known as capital leases, conditional sales or dollar buyout leases, finance leases are a viable option for those who wish to retain the leased equipment at the end of the lease-contract. To be clear, this type of lease comes with higher monthly charges, which serve as the monthly installments towards the ownership of the leased equipment. And once the lease period expires, you are allowed to purchase the leased equipment for an agreed amount–which can be as little as a dollar.
True leases, also known as tax leases, operating leases or fair-market-value-leases, generally require one to pay lower amounts of monthly lease payments when compared to finance leases. Actually, the monthly payments only account for the rental charges; and if you wish to retain the equipment at the end of the lease, you can buy them at the ongoing fair market value. If not, you are supposed to return the leased items or have the lease renewed at the end of the lease period. That said, you can settle for this type of lease if your type of business requires a regular upgrade of equipment.
Equipment Leasing For Small Businesses: Factors To Consider
Before you lease any equipment, it’s advisable to compare the cost of leasing the item with the actual buying price and the ongoing interest rates as well, to assess if the terms are favorable on your side. Try to examine the actual cost of leasing and the amount of money that you’ll be saving if you decide to lease instead of buying, and you’ll definitely know the right path to take.
Secondly, take your time to go through the lease agreement more carefully; and if you can’t understand any section, ask your lawyer to help you out. In so doing, you’ll be protecting yourself from undesirable legal repercussions, which may arise during or after the lease.
Also important, if you finally decide to take a lease, choose a close-end lease that comes without balloon payment at the end. With this type of lease, you’ will be owing the lease company nothing once the lease-contract has expired. That’s to say you can hand over the equipment, and then walk away debt free at the end of the lease. For an open-end lease, however, the company will charge you if the item you return has somehow depreciated in value. On similar grounds, balloon payment makes you pay small monthly charges with an additional payment at the end–balloon payment.
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Ending Your Lease
Most lease terms generally range from 1 to 5 years, but you can still find companies that lease equipment for a term-range of 6 to 120 months. However, the term to choose will completely depend on what you are planning to do at the end of the lease term. For your information, here are the options you have at the end of a lease period:
– You can purchase the leased equipment at the fair market value.
– You can purchase the leased equipment at a nominal fee or at a fixed price.
– You can return the items.
– Lastly, you are allowed to renew the lease.
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