Why You Should Consider Equipment Leasing for Your Small Business
Having the right equipment is critical for most businesses. But equipment can be expensive and there may not be enough capital to buy it outright. An important option, equipment leasing, can be advantageous under any circumstances.
Equipment Leasing Versus Buying
Equipment leasing is essentially renting equipment instead of owning it. Various types of equipment can be leased including computers, machinery, and vehicles. A lease is entered into for a specific time. When the lease ends; the equipment lease can be renewed, purchased, or returned to the leasing agent.
Advantages and Disadvantages of Equipment Leasing
The advantages include generally not having to make a down payment, so cash flow is conserved. Lease payments are usually considered as tax-deductible business expenses. Leases can be easier to obtain, and they may have more flexible terms compared to purchasing equipment. And a lease provides a way to upgrade equipment to avoid obsolescence.
The disadvantages of equipment leasing include creating a higher overall cost versus purchasing equipment. Plus, a lessee is obligated to pay on a lease during the entire term of the lease. Even if the equipment is no longer useful. And, since the equipment is not owned, it does not build any equity.
Equipment Leasing—Requirements and Considerations
The requirements for equipment leasing are that the equipment must be a costly item, generally costing more than $3,000. Additionally, the equipment must be considered a hard asset.
Considerations when leasing equipment includes first, establishing a monthly budget for payments and factoring that into cash flow. Second, determine how long you will use the equipment. Short-term equipment use is more beneficial for leasing than is long-term use. Consider the rate the business growing too. Third, consider how quickly the equipment may become obsolete.
Equipment can be leased through a lease broker, a leasing company, or an independent lessor.
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