Leasing equipment can be a smart way to conserve capital, especially at the outset of your business. It allows you to obtain essential equipment and services without having to use a loan or make a cash purchase.
Let’s say you have a business and you’re looking to take it to the next level. You’re ready to upgrade your equipment, but you don’t have enough cash on hand to do it. What do you do?
If you’re in this situation, then leasing may be exactly what you need. With leasing, you can get the equipment your business needs without having to make a high upfront payment.
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What is Equipment Leasing?
Equipment leasing is a simple process where a business (lessee) pays an equipment leasing company (lessor) to use the equipment for a specified amount of time. The lessee agrees to make regular scheduled payments during the lease period and at the end of the lease term, they may either return the equipment or buy it outright.
In essence, the equipment leasing industry helps you finance the purchase of business equipment without having to pay up front. Instead, you make regular payments over an agreed-upon period of time — usually 24 to 72 months.
Why Leasing is a Great Alternative
When it comes to financing equipment for your business, leasing can be a great alternative to buying. Buying equipment outright can limit your capital and purchasing power, while leasing allows you to conserve cash and leverage the equipment you need to grow.
One of the many benefits of leasing is that it provides flexibility. You can lease a variety of equipment – including those not found on balance sheets or depreciable over the course of several years.
More benefits of equipment leasing include:
Preserves cash flow.
Instead of making an expensive upfront payment, you can spread payments out over time and have more cash on hand for daily operations.
Keeps credit open.
Taking out a loan will use up some of your available credit, which may affect your ability to get future loans or other credit lines if they’re needed. Leasing keeps this line of credit open in case you need it later on.
Fixed-monthly payments.
Most leases come with fixed monthly payments, which will make it easier to budget and plan expenses since you know exactly what your payment will be each month.
Fixed-term agreement.
When you lease equipment, it’s for a set amount of time (24-72 months). So once the term is up and the equipment is paid off, you won’t have any more payments to make
A competitive edge
Leasing can give you an advantage over the competition with more flexibility and lower monthly payments. You may have the option to upgrade your hardware more frequently, as well as deduct lease payments from your taxes
6 Types of Equipment You Can Finance Through Leasing
Transportation
If your company needs cars, trucks, and other vehicles that require regular maintenance or improvements, such as food trucks or landscaping vehicles, consider leasing them rather than purchasing them for business use. The same may be said of air travel and/or nautical transport.
In short, vehicles are essential for a number of businesses and leasing can help you keep the fleet up-to-date.
Industrial machinery
Some small, medium or businesses may have a need for industrial machinery such as forklifts or tractors. These large pieces of equipment can be very costly and often require additional training for employees who will use them.
Leasing machinery through heavy equipment financing products gives businesses the chance to try out new technologies without making a big investment. It also allows employees to gain experience operating the machines before deciding whether to buy them outright later on.
Office equipment
If you need new computers, fax machines, printers, copy machines or any other type of office equipment, leasing is an excellent option. Leasing allows you to obtain the latest technology or replace worn-out items as needed, without making a large up-front investment.
In fact, if you take advantage of a leasing program with a fixed monthly payment, it will help you manage expenses more effectively. If you choose this path, be sure to look for a financing partner that offers all-inclusive maintenance so that your monthly payments include all service costs associated with your equipment.
Medical equipment.
Medical practices can benefit from leasing expensive medical equipment instead of buying it outright. This includes X-ray machines, MRI scanners, CT scanners, ultrasound machines, dialysis machines and more.
Restaurant equipment
Restaurant owners know that equipment can take a beating — especially in the kitchen. From stoves to refrigerators, restaurant equipment is expensive. Leasing may be more cost effective than buying new equipment outright.
IT and telecom systems
Newer hardware and software often become outdated quickly; this means you could wind up wasting money if you buy your IT and telecom systems outright. With leasing, however, you can upgrade your systems as needed during the agreement period.
What Do You Need to Qualify for a Lease?
If your business is considering leasing equipment, you need to consider a few factors to determine if leasing is the best option for your business.
Leasing equipment through a bank will require you to meet certain requirements before they will approve your application.
The requirements include:
A strong credit score, which is used by banks to determine if you are a reliable borrower who will pay back the lease. If your credit score is less than expected, then it may be difficult to get an approval from the bank.
A strong cash flow to repay the lease, which the bank can verify through your financial statements. Your company needs to have a solid track record of cash flow and revenue generation in order to qualify for a lease.
Your business needs to be in operation for at least two years or more in most cases. Some banks may allow newer businesses but have a minimum requirement of one year or more.
Last Words
There is a lot more to consider when you are leasing equipment instead of buying it outright. Additionally, before putting the negotiations together, you should keep in mind the type of equipment you want to lease.
Whether you choose an office area or an office equipment lease, it is important to be familiar with the pros and cons related to each option. Make sure that this information is discussed well within your organization before you go into any further negotiations.