Equipment leasing is one of the most reliable ways of acquiring business equipment today. Recent surveys in the United States found that about 80% of new businesses obtain some of their equipment through leasing. New businesses are always faced with the problem of finances because their flow of income is still low. Leasing is a better alternative to buying equipment because it enables your business to utilize the capital available for cash flow.
However, there are several questions you need to answer before settling on a particular leasing decision. Some of them are:
1. Do you think you will require the equipment for a long time? If the answer to this is YES, it is advisable that you negotiate a purchase alternative that will ensure that some of the lease payments go to the acquisition account.
2. What are the terms and conditions or legal repercussions associated with leasing? It is a better idea to flick through the lease before placing your signature in it to prevent adverse repercussions.
Advantages of Leasing Business Equipment over Buying!
Low monthly payments
Monthly lease payments are usually lower than the expense of acquiring the equipment through other means. Borrowing to purchase equipment is far more expensive than leasing because of the high interest rates charged by most financial institutions.
Your capital does not get tied up!
Leasing helps you to keep your business money for other requirements. Unexpected expenses are not unusual in the business world and this money also can come in handy as working capital when your revenues are low.
Immediate use of equipment!
Most financial lending sources require up to 25% down payments. Leasing, on the other hand, provides you with the equipment at a nominal up-front cost. Most leases will only require at least one or two advance payments to allow the use of the equipment.
Technological advancement is happening at a dangerously rapid pace and a piece of equipment you are using today could be so out-of-date two years down the road. Leasing offers you the chance to enjoy the best of today’s technology while it lasts and upgrading when it becomes obsolete. Therefore, you are able to stay competitive and flexible.
Fixed terms of payments!
Banks and other financial institutions have variable rates of credit depending on the market dynamics. Lease payments are usually fixed regardless of what is happening in the market. It is a better alternative because it protects you from possible skyrocketing interest rates. For instance, there was a rise in rates from about 9 percent to over 20 percent in the same year in the 1980s. Such a financial inconveniency cannot happen with equipment leasing.
Leasing has a tax advantage compared to other financing options. Unlike loan payments, equipment lease payment can be a pre-tax business expenditure that can significantly reduce your taxes. Taxes are usually paid on profits and can add up to 40% to the cost of the equipment when paying cash for it.
In a nutshell, equipment leasing is the way to go to save on time and hassle of finding a guarantor for money to buy business equipment. It guarantees a speedy takeoff for your business venture.