Equipment Leasing 101
If you own your own business or are considering opening a new business you may be aware of the money required to keep a business running. Depending on the type of business you have, equipment leasing may be a way to keep some of the expenses down while allowing you to have access to the newest technology.
What is a Lease?
A lease is basically just a long term rental agreement between the lessor and the lessee (renter) where the lessor agrees to allow the lessee to use a property or piece of equipment in exchange for regular payments. There is usually a specified number of months or years that the lessee agrees to borrow the equipment for before having the option to renew the lease, buy the equipment, or end the lease agreement.
What are the Advantages to Leasing?
There are many advantage to leasing. To begin with, the down payment and the subsequent monthly or quarterly payments on a lease are usually substantially smaller than the payments on a purchase. This can free up some cash for the business owner to continue operating their business and may make it possible for them to use equipment that they could not otherwise afford. The payments on a lease are also usually at a fixed rate, allowing the business owner to budget regular payments without worrying about fluctuating interest rates and payments.
By leasing, a business also has the ability to use the newest technology. Technology is always changing and updating, and new products are generally more efficient than older ones. By choosing to lease technological equipment, a business can use the newest technology at a fraction of the cost and update again in just a few years when the lease ends.
What are the Disadvantages to Leasing?
The biggest disadvantage to leasing is that the business owner does not own the equipment being used. At the end of the lease, there is nothing to show for the money paid. Usually, the lessee has the option to buy the piece of equipment at the end of the lease, but if this option is selected, they may actually end up paying more for the equipment in the end than they would have if they had just purchased the equipment to start with.
Another inconvenience with leasing equipment is that the lessee cannot make alterations or upgrades to the equipment without permission from the lessor. This can make it more difficult to get repairs done as the lessee has to wait for permission from the lessor to get the work done.
There are many advantages and disadvantages to leasing equipment for a business. However, by doing a little research and calculating, you should be able to make the decision that is best for you.