While 80% of all US businesses have leased equipment at one time or another, some
may not be aware of the benefits, nor of the hidden costs involved with leasing.
Sometimes leasing equipment, instead of buying it, can be the best option for your
business. However, there are many variables that should be considered, including
costs, use restrictions, and legal implications.
Leasing operating equipment, such as computers, vehicles, and machinery, often makes
more sense than buying. However, while favorable leases are often good bets,
unfavorable ones can easily sink an emerging venture. While doing your legal
homework can help prevent bad deals, it's always a good idea to have a lawyer look
over a lease before signing it.
Benefits of Leasing Equipment
1. Leasing is Flexible.
Companies have different needs, different cash flow patterns, and sometimes irregular
streams of income. For instance, startup companies typically are characterized
by little cash and limited debt lines. Mature companies might have other needs
- to keep debt lines free, to comply with debt covenants, and to avoid committing
to equipment that may quickly become obsolete. Therefore, your business conditions
- cash flow, specific equipment needs, and tax situation may help define the terms
of your lease. Moreover, a lease provides the use of equipment for specific
periods of time at fixed rental payments. Therefore, leasing allows you to
be more flexible in the management of your equipment.
2. Leasing can be Cost-Effective.
Equipment is costly and some of the costs are unexpected. When you lease,
your risk of getting caught with obsolete equipment is lower because you can upgrade
or add equipment to best meet your needs. Further, your equipment needs can
change over time due to changes to your company, such as diversification.
Leasing allows you to stay on the cutting edge of technology.
3. Leasing Has Tax Advantages.
Rather than deal with depreciation schedules and Alternative Minimum Tax (AMT) problems,
you, the lessee, simply make the lease payment and deduct it as a business expense.
4. Leasing Helps Conserve Your Operating Capital.
Leasing keeps your lines of credit open. You don't tie up your cash in equity.
Also, you avoid costly down payments. With other advantages such as
off-balance sheet financing, leasing helps you better manage your balance sheet.