Every business needs equipment of some kind. From computers and telephones to delivery vans and forklifts, equipment plays an important role in business operations. Deciding how to pay for these items is a question every business owner faces. Leasing can provide a number of advantages and help you grow your company faster.
Because cash flow management is crucial – especially in times of economic turmoil – leasing your business equipment is an important option to consider. In the long-term, a lease typically costs more than an outright purchase. However, leasing offers a number of distinct advantages, including: preserving your cash and credit; greater flexibility in managing expenses; additional tax treatment options; and access to better equipment and trade-up options.
Managing, conserving, and leveraging your capital
For most companies, managing capital is a priority. The ability to access cash and credit wisely and control costs is crucial.
Keeping cash or credit available for items such as accounts receivables or inventory can help spur growth. On the other hand, capital tied up in purchased and depreciating assets is not accessible and selling owned assets to access funds can result in a loss on your original investment.
Leasing typically requires no down payment and allows you to finance 100% of the asset. Sales tax is paid on your monthly payment rather than upfront which further reduces capital outlay. Leasing can help your company remain liquid and grow.
An equipment lease can be flexible
We all like having options, and depending on your company's financial situation, a lease can be flexible in both payment amount and schedule.
Seasonal businesses may be able to pay less during slower periods. Stepped payments can allow you to pay more today and less in the future. With some suppliers and equipment, maintenance and repairs can be built into a lease providing peace of mind and no surprises down the road.
Establishing a "leasing line of credit" can make funds available for leasing equipment as you need it. Your available leasing credit will fluctuate as you enter into or pay off your leases.
Access to better equipment
We all know equipment can be costly. At the same time, having the right equipment for the job is important to success. Leasing can bring better and more expensive equipment within reach.
A lease can extend your ability to access better equipment by reducing the capital outlay associated with purchasing or borrowing. Borrowing to purchase usually requires a significant down payment - leasing typically does not.
Obsolescence, high use, and easy trade-up
Some equipment, especially technology-based, becomes obsolete quickly. Equipment that will receive high use can wear out fast. In these situations, owning the asset may not be worthwhile as you may need to replace it in a relatively short period of time.
During the term, if an equipment upgrade is required, certain leased equipment can be traded in for new. If you refinance with the same Lessor, you should benefit from a reduced payout balance on the existing lease, and the new lease allows you to acquire new equipment while keeping a consistent payment.
It is important to ask questions about trade-up, lease breakage, and end of term payout fee policies before signing your lease. These conditions are often hidden in the fine print adding additional expenses you did not anticipate.
Lease payments are a business expense
You may not be aware that lease payments are considered a business expense and as such can be written off against earnings in the year they are paid. On a shorter-term lease this allows you to write-off your total expenditure quickly.
If you purchase equipment you can claim depreciation, but it can take many years to fully depreciate an asset.
Getting the go-ahead to lease
If you need to act quickly, leasing will get you the equipment you need when you need it. Leases are usually easier to obtain than loans, depending on your financial position, and take less time. Leases are based on the fact that the equipment itself is the collateral, not your home or other assets.
Leases also have more flexible terms than loans and can be tailored to your cash flow should your business revenue be impacted by seasonal or cyclical changes.
Leasing factors to consider
If you've decided a lease is the way to go, keep the following in mind and discuss your options with your leasing professional.
You can lease new or used.
You can negotiate the length and repayment terms of the lease.
There is typically the option at the end of the term to buy the equipment, upgrade, or take out another lease.
If you've decided to purchase, there are a variety of loans available in addition to setting up a line of credit. Talk to your accountant and business advisor to arrive at a borrowing solution that best meets your needs.
The value of a leasing advisor
Establishing a relationship with a leasing advisor is a good idea; it ensures you have access to another professional expert that understands your business needs. BlueShore’s leasing specialists have the experience and resources to help you explore your options when acquiring new equipment and will recommend the best leasing solutions for your business circumstances.
Patryk Swierkowski
Business Advisor
Have a question? Ask an expert
Our team of experienced professionals are here to answer any questions you may have.
The information contained in this article/video was written by BlueShore Financial or one of our expert financial writers and was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. It is provided as a general source of information and should not be considered personal financial advice.