It does not matter at which stage your business is; business equipment leasing is the right step towards saving on costs.
If your startup business has little or no revenue yet, consider obtaining a lease of less than $100, 000. Not only is this practical but it is also easy to get approved for such a lease.
You might be wondering who supplies equipment leasing companies with capital. Investors put in billions of dollars into capital markets every month and a portion of it goes to equipment leasing companies. Equipment leasing companies then use the money to purchase commercial and business equipment on behalf of businesses.
Leasing companies are flush with capital and as the economy improves cash flows into the markets on a constant basis. Many leasing companies have lower monthly rates because they are eager to respond to competition as well as do business.
Why Should You Lease Business Equipment?
One of the reasons why you should consider business equipment leasing is because it allows you to make flexible payments and requires fairly minimal upfront costs. You also get flexible end of lease options.
Unlike a regular bank loan, you don’t need to make any down payments so you can use your working capital to improve other areas of your business.
You can also lease equipment as an effective strategy of avoiding obsolescence. Evaluate the useful life of your equipment when setting up the lease. Choose a lease term length that will allow you to upgrade equipment before they become obsolete. For instance, if plan to lease computer equipment, consider a lease of no more than two years. This is because computers are subject to technology changes and tend to become outdated very fast.
Business equipment leasing can help you save on taxes. This of course depends on how your lease agreement is structured. If it can be structured to allow you to deduct lease payments as a business expense rather than depreciate the value of the equipment as if it were capital expenditure. You should talk to a financial advisor so that you can learn how your lease will impact your business.
What Can You Lease Under Business Equipment Leasing?
You can lease almost anything that will help your business run smoothly. You can lease anything from computers to copiers and LCD projectors. You can even lease soft cost purchases such as software, installation, training and service. The only thing you need to know right from the start before you sign your lease is your lessor’s policies regarding leasing soft assets.
The Different Types Of Equipment Lease Financing
There are basically two types of lease financing: true and finance.
True Lease
They are also called fair market value leases, operating leases or tax leases. They generally require lower monthly lease payments as compared to the finance lease. What’s more is that you can choose to return the equipment at the end of the lease period or buy it at fair market value. This is a viable option for your business if you use equipment that requires frequent upgrades.
Finance Lease
They are also known as dollar buyout leases, conditional sales or capital leases. This is could be a viable option for you if you plan to keep the equipment at the end of the lease period. It has higher monthly payments but the payments count as installments towards ownership of the equipment. At the end of the lease period, you can purchase the equipment for as little as $1.
Ending Your Lease
Many lease terms range from 6-120 months but most of them fall between one to five years. What you decide to do with the equipment at the end of the lease term will determine the lease term that you should choose. You can choose any of the following:
- Purchase the equipment at fair market value
- Purchase the equipment at a fixed price or a nominal fee
- Renew the lease
- Return the equipment
Consider what state your equipment will be in before you decide on a particular end of lease clause. You should also consider if you would like to upgrade the equipment or if you would opt out of the equipment lease early.
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