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Is Equipment Leasing The Right Choice For Your Business?

Simply put, equipment leasing is an alternative type of business loan. The leasing company buys and owns your choice of equipment and then basically rents it to you at an agreed upon rate for a specific number of months.

Traditionally, small to medium-sized businesses have utilized the lease option to help them update, upgrade or expand their capabilities. Whether they're excavators in need of a new enormous piece of equipment or a service business in need of a new phone system, the advantages of leasing often play a major role in their continued growth. Today, however, even large businesses are using the leasing option to fit specific division or department budgeting requirements.

To decide if equipment leasing is the right option for you, consider the major advantages. Leasing may be a smart business decision if you:

  • Like to keep your cash on hand. Purchasing new equipment of any type can mean a sizable outlay of cash that may be better invested in inventory, personnel, advertising or other expenses. Leasing lets you conserve capital for when and where you need it most.

  • Want to establish and utilize additional lines of credit. When you purchase any type of equipment with borrowed money, your credit lines with any bank will be reduced. When you lease equipment, you're basically establishing a new line of credit with your lessor. Your current credit with the bank will still be available for other uses.

  • Would like to avoid down payments and outlays for soft costs. Traditional business loans usually require a large down payment, often as much as 20%. In addition, they do not include such things as freight, installation or employee training. A good lease program will allow you to include these necessary "soft costs" in the total package.

  • Prefer payments that fit your business and budget. When you work with a good lessor, you'll be able to structure your payments to meet your business needs. You can budget in a standard monthly payment or take advantage of such options as changing seasonal payments.

  • Want the equipment to pay for itself. You wouldn't be expanding your business or upgrading your capabilities unless it would increase your productivity or provide you with new opportunities and therefore generate more income. With a lease, your new equipment can help you produce the extra funds that will usually cover the monthly cost almost right from the start.

  • Like to cut through the red tape. Working with a reputable lessor is almost always a faster and easier way to gain what you need to expand or improve your business. There are simply far fewer governmental and legal obstacles to address. This is especially true if you wish to extend your commitment beyond the typical 12 to 36 months. A lessor will work with you to ensure your success.

  • Need to protect your company against obsolescence. In today's world of quickly advancing technology, the equipment you buy today can be outdated in a matter of months. When you lease equipment, you won't get stuck with something that has little value to you or anyone else. You can arrange at the end of your lease to purchase the equipment for its fair market value (or an agreed upon amount), continue leasing, lease new equipment or return it.

Start with what and who you need. Once you've determined exactly what you want in equipment, most sellers will refer you to a leasing company with whom they do business. You may also wish to contact a reputable leasing company first to see who they recommend in choosing the right sellers. No matter which route you take, it's always wise to get at least two quotes on your equipment.

Then, sit down with your leasing company and work through the details. Deciding what you want in terms of a lease is every bit as important as what you need in equipment!

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