Equipment leasing is one of the most reliable ways to purchase commercial equipment today. Recent surveys in the United States found that about 80% of startups obtain some of their equipment through leasing. Startups are always faced with the problem of finances because their income stream is still low. Leasing is a better alternative to buying equipment because it allows your business to use available capital for cash flow.
However, there are several questions you need to answer before deciding on a particular leasing decision. Some of them are:
1. Do you think you will need the equipment for a long time? If the answer to this is YES, it is recommended that you negotiate a purchase alternative that ensures that some of the lease payments go to the acquisition account.
2. What are the terms and conditions or legal implications associated with the lease? It is a better idea to page through the lease before placing your signature on it to avoid adverse repercussions.
Advantages of Leasing Commercial Equipment Over Buying!
Low monthly payments
Monthly lease payments are often lower than the expense of acquiring the equipment by other means. Borrowing to buy equipment is much more expensive than leasing due to the high interest rates charged by most financial institutions.
Your capital is not immobilized!
Leasing helps you keep money from your business for other requirements. Unexpected expenses are not unusual in the business world, and this money can also be useful as working capital when your income is low.
Immediate use of equipment!
Most sources of financial loans require up to 25% down payment. Leasing, on the other hand, provides you with the equipment at a nominal upfront cost. Most leases will only require at least one or two payments up front to allow use of the equipment.
Technological advancement is happening at a dangerously fast rate and a computer you are using today could be so out of date two years from now. Leasing offers you the opportunity to enjoy the best of today’s technology while it lasts and upgrade when it becomes obsolete. Therefore, you can stay competitive and flexible.
Fixed payment terms!
Banks and other financial institutions have variable credit rates based on market dynamics. Lease payments are generally fixed regardless of what is happening in the market. It is a better alternative because it protects you from potential interest rate spikes. For example, there was an increase in rates from about 9 percent to more than 20 percent in the same year in the 1980s. Such financial inconvenience cannot occur with equipment leasing.
Leasing has a tax advantage compared to other financing options. Unlike loan payments, the equipment lease payment can be a pre-tax business expense that can significantly lower your taxes. Tax is generally paid on earnings and can add up to 40% to the cost of equipment when paid in cash.
Simply put, equipment leasing is the way to go to save time and the hassle of finding a money guarantor to purchase commercial equipment. Ensures a fast take-off for your business.