HOW AND WHY TO LEASE EQUIPMENT INSTEAD OF BUYING IT

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Photo by National Cancer Institute on Unsplash

You can obtain a lease at most banks or lending institutions. A lease is defined by Business.gov as a way to obtain a piece of equipment with a contract. Just to be clear, you do not own the equipment. In a way, you are borrowing the piece of equipment, and in return, you pay a set amount for a determined length of time. After that amount of time is up you give the equipment back.

During the time that you have the equipment, you will have to maintain it. You can use it whenever you want for the duration of the contract. It is kept on-site, just like if you owned it. You cannot alter, or damage, the equipment in any way. This will be a clause in the agreement because after your lease is up, the agency that you got the lease from will sell the used piece of equipment.

GE Capital claims that 85% of small, and medium, businesses prefer to lease rather than buy outright. This could be for a couple of different reasons since there are benefits when you compare leasing to buying.

  1. Cash Flow-Leasing allows you to keep much of your cash flow. You do not have to buy the equipment outright or bother with getting a loan that will require collateral. Leasing also does not usually require a large sum of money as a down payment. It allows you to use your budget for other things, especially when you are first starting out in your business, or when you need to upgrade a piece of equipment to be able to process orders faster.
  2. Ease-A lease is way easier to get than a loan. You do not have to have great credit, or something large to put as collateral. Most of the time you will not need to get the signature of a co-signer either. A lease is a great solution to equipment finance situations when you are still working on building credit, but you need the equipment to keep your business going.
  3. Tax Benefits-When doing your yearly taxes, a lease can be completely written off as a business expense. A loan can only be partially written off. This will help you at the end of the fiscal year by lowering the amount of the tax payment that you owe to the government.
  4. Upgrade-At the end of the term of the lease, you will return the equipment. You can then get another lease on a newer machine that will work more efficiently. You will need to get another lease through the bank, which will be even easier this time if you made your payments on time and honored everything that was in the contract. With leasing, you can have up-to-date machinery every couple of years without worrying about trading, or selling, your old stuff.

Leasing equipment is a viable option for any size of business. It works well for startups or companies with a smaller amount of cash flow. Any type of equipment can be leased. Some retail companies will even offer leasing through them. When you need a new piece of equipment decide if you truly need to own it, and if you can afford to buy it. If you answer “no” to either question leasing is the perfect solution for you.