Are you having trouble financing the purchase of equipment needed to grow your business? Before you start tearing your hair out about going through the traditional loan process, consider renting. It may be the solution you and your business have been looking for, but didn’t know existed. Often you won’t have to look far to find a leasing company to work with, but another option may be found at some banks or other popular providers.
Some manufacturers have their own full-time leasing agents with whom you can discuss your options. These agents will tell you about the types of lease or credit agreements that can be made with that particular manufacturer or subsidiary company. This type of transaction falls under the category of financing, but it is really just another way to obtain something that will help your business in the same way that the funds would benefit you.
Before you start listing your gear needs, alphabetizing, and generally thinking of this as a free shopping trip, let me give you the full story. There are two sides to every corner, and this is no different in the financial world. Ultimately, you will have to weigh the pros and cons to decide what would be best for you and your business.
Some of the benefits of leasing can be particularly attractive, perhaps the greatest of which is the fact that it makes more funds available to you for other financial obligations. Leases typically require only a small down payment, or if you’re lucky, none at all. This availability of funds allows you to further expand another part of your business, or it can provide you with the necessary finances to pay off previous debts.
In terms of debt, leasing leaves less debt on your financial statements, since you only rent these assets for a set period of time. The lease transaction will not affect your balance sheets in any way, and only the financial statements related to expenses will show a record of the amounts of the lease transactions. This will help you keep your credit clean, which can make it easier for you to get a traditional loan in the future.
Leasing also provides plenty of options when you want to upgrade or change equipment. This is another reason why it can be particularly attractive to certain companies, such as those in a rapidly changing technological field. The leasing company may even have an upgrade clause that allows you the option to upgrade at a certain time. This upgrade allowance would add insurance for you to provide the best service to your customers as you would be able to constantly assess and maximize the quality of your equipment.
Finally, there are the tax-deductible benefits that come with leasing. Rental costs are deductible expenses that will help reduce the amount of taxable income. The difference between buying and leasing the equipment could have a big impact on your taxes. That is why I advise you to sit down and do some calculations to see if it would be the best decision in the short and long term for your particular venture.
Now, as with everything, there can and will be downsides to this particular type of trade deal. For example, there may be certain loopholes in the lease that you should be aware of before signing on the dotted line. Insurance costs and repair costs need to be factored into the whole equation to ensure that leasing is a good business option for you. In addition, the total cost of the equipment for the period of time you will be leasing must be considered in advance. One of the biggest benefits of leasing can be the money-saving aspect, but if you ultimately end up paying more than you would to purchase such equipment, the benefit is lost. In some cases, this cannot be avoided and the cost will be higher over the life of the lease, but the payment schedule may be a better fit for your own financial schedule. Consider your options and again decide what best suits your business needs.
The fact that you don’t technically own the leased equipment may work against you in the fairness game. At the end of the lease, he will not have any tangible assets in exchange for the payments he made. He can offset this particular negative by negotiating an agreement in which a portion of his payments will be credited toward the purchase price of the equipment. This will then create equity in your rental property.
Leases are also difficult and financially demanding to get out of because they are binding. In the event you stop using the equipment, you will remain under contract to make your regular payments. If you choose to cancel early, a high cancellation fee will likely be added to your expense report. In most cases, the fee may make such action financially unworthy.
My advice would be “Take your time”. Review the options, create your own scenarios tailored to your business, and decide if leasing is for you. In the short term, it could be just the solution you’re looking for. Remember, you can negotiate the length of the deal, so if you were able to use the funds it would free up, it might be in your interest to take advantage of that deal.
For more information on these topics, visit Dyer Consulting Group