A Guide to Equipment Leasing
Many companies buy their equipment outright. Ownership certainly comes with its own rewards. Another option for getting the equipment you need to run your business is leasing. Equipment leasing not only offers certain tax benefits but it may be a less expensive option, particularly for short-term equipment or equipment that requires frequent upgrades. There are many factors to consider before you decide whether to purchase or lease equipment.
Business owners usually don’t lease equipment that is relatively inexpensive to buy. For example, a purchase that is less than $2,000 is probably not worth the trouble of leasing. A $20,000 machine, however, might be a good candidate for equipment leasing, particularly if the next improved model is expected on the market within a few years. Leased equipment must also be a hard asset. You cannot lease software, for example. It must be an item that can be considered personal property.
When deciding whether to purchase or lease equipment, how much each option is going to cost in the long run is a good standard to use. When purchasing equipment, you must take into account initial price, depreciation rates and maintenance costs. When you lease equipment, you should pay close attention to the monthly lease cost, interest rates and term length. Calculating a ballpark figure for each can give help you decide if leasing is the best option.
Once you have decided that equipment leasing is the way to go, it is important to understand the steps in obtaining the lease. First, you should decide whether you want to pursue an operating lease, which allows you to use the equipment without owning it, or a finance lease, which allows you to report the equipment as an asset. An operating lease usually means a lower interest rate, but a finance lease offers better tax benefits.
Before you apply for a lease, gather the financial information that proves you are a low risk. Once you have the financial data to support your status as a healthy risk, you may apply for an equipment lease. If approved, you typically receive notice within 48 hours. After you receive approval, you review the terms and sign the paperwork agreeing to them. Finally, you are notified that the equipment is ready to deliver to your business.
Equipment leasing allows companies to obtain the equipment they need to run their business without having to take on the expense of purchasing and maintaining it. As upgrades start to hit the market more frequently, leasing equipment rather than buying it makes a lot of sense.