Some of the most successful small businesses in America never purchase their equipment… they lease it! Equipment leasing makes sense for the majority of small businesses today because leasing provides many benefits that purchasing does not.
So what is Equipment Leasing?
Equipment leasing is when a business uses a piece of equipment owned by a leasing company for a set period of time at a set price. The lease can allow for the business to purchase the piece of equipment at the end of the term or upgrade to a new piece of equipment. Equipment leasing works for all types of businesses, including agricultural and farm, computers and telecommunications, medical and health care, office, church and non-profit, educational, environmental, and pharmaceutical.
Leasing allows for the preservation of cash. Having cash on hand provides the flexibility and security today’s small businesses rely on for running the day-to-day operations and gives the necessary “cushion” for unexpected expenses and emergencies. Leasing also offers many tax savings and benefits not available by purchasing equipment outright and makes it easy to upgrade your equipment when the terms come due.
A Lease is Not a Loan
One key thing to understand is that an equipment lease is not a loan and their costs are determined differently. With leasing you need to consider the cost of the capital instead of the total cost of the equipment as you would if you purchase it. The best way to compare a lease to a loan is to compare your monthly payment and how that affects your cash flow instead of comparing interest rates to lease rates.
Will Leasing Work for my Business?
If you are wondering if an equipment lease might work for your business there are a few things to consider:
- How long do you want to use the equipment?
- What do you intend to do with the equipment at the end of the lease?
- What is your current cash flow situation?
- What is your current tax situation?
- What are you company’s specific needs in regards to future growth?
Once you have the answers to these questions your CPA or accountant can help you decide if leasing is an option that could work for your business.