Buying equipment for your business is expensive. If you don’t have the cash flow to purchase all the equipment you need upfront, then equipment leasing is an excellent solution.
Let’s start by addressing the downside to equipment leasing – you don’t actually own the equipment. While this could mean extra expenses over the long run, it also comes with a load of added benefits.
For example, there’s a lot less risk, it’s more affordable straight away, and you can always keep your business up to date with the latest equipment.
This guide takes a look into equipment leasing for your business, and why it’s a good idea.
What Is Equipment Leasing?
Equipment leasing is a process where your business rents equipment, such as machinery, computers, or vehicles, instead of purchasing it.
With an equipment lease, your business rents the equipment for a set period of time. At the end of the lease, you will either renew the lease, return the equipment, upgrade, or have the option to purchase it.
Equipment leasing requires you to make periodic payments to be able to hold and use the equipment. This is generally done on a monthly basis.
This process is different from equipment financing, where you pay off a loan to purchase the equipment.
The Benefits Of Equipment Leasing
If your business needs to use expensive equipment in order to operate, there are a couple of different options available – like taking out a loan, entering a hire-purchase agreement, or opting for equipment leasing. Each option comes with its pros and cons.
Let’s explore some of the main advantages of equipment leasing, and why it’s a good idea compared to buying.
1. It’s More Affordable From The Start
The main benefit of equipment leasing is that it’s the most affordable way to set your business up with advanced equipment.
If you’re a cash-strapped small business just starting out, then equipment leasing can help you get access to the equipment you need without any major investment.
This is because there’s often no large deposit that needs to be paid. You also don’t have to worry about paying any interest on your monthly payments. This means the monthly payments are usually more affordable than if you took out an equipment financing loan.
2. It’s More Accessible
Taking out a loan for purchasing equipment requires a down payment, credit checks, and possibly other considerations depending on the equipment/cost.
If you’re a new business, it might be tricky to convince lenders to provide you with the capital you need to purchase equipment.
With equipment leasing, it’s a much easier and more straightforward process.
3. You Can Upgrade The Equipment
One of the biggest advantages of equipment leasing is that it’s a much less demanding commitment. Because you don’t own the equipment, you don’t have to invest in a long-term commitment.
This means that you can easily update/upgrade your equipment at the end of the lease, without having to sell the equipment and purchase new tools.
There are two advantages to this. The first is that it lets you keep your business up to date with the most modern, and relevant instruments.
Second, it lets you test out different types of equipment for your business. If you lease a certain piece of equipment and you realize you don’t like it, you can always change to a different type at the end of your lease. This is a great way to test out equipment before committing to a purchase.
4. Leased Equipment Is Easier To Scale
You get a lot more flexibility with equipment leasing. This comes in handy if you suddenly need to keep up with a surge in demand for your business.
Instead of having to sell your existing machinery and shop for a replacement, equipment leasing makes it a lot easier to just upgrade the device you’re currently leasing. You could also just lease another if you need to scale up your operations.
If your business faces seasonal demand, then you could also lease additional equipment for a short period to keep up with this demand. This is a convenient way to keep your business operating smoothly without the risk of investing in unnecessary equipment.
5. You Might Get Tax Credits
Depending on the lease agreement, it might be possible to deduct your payments as a business expense as part of the Section 179 Deduction rules.
This could offer you some valuable tax credits, helping make equipment leasing a smart and convenient financial move for your company.
Of course, this depends on your business and the equipment you lease, so be sure to speak to a tax practitioner to fully understand all the intricacies around this.
6. There’s Less Risk
Investing in large and expensive equipment for your organization is a big decision and a big commitment. If you purchase equipment that is a bad match for your business, you’ll be stuck paying it off for a long time, or lose money selling it as it is a depreciating asset.
Then, there are also all of the additional expenses that come with owning equipment, such as maintenance and insurance.
Equipment leasing often includes maintenance plans and insurance coverage, so maintaining the equipment is a lot easier and more manageable.
Conclusion
Buying and maintaining equipment is expensive. Enter equipment leasing, a smart solution for overcoming this.
If you need to get your business set up with quality equipment but don’t have the necessary cash, then leasing the equipment may be the ultimate solution for you.
Beyond financial benefits, you can access a lot more flexibility and don’t have to worry about the long-term commitment involved.
For small businesses just starting out, equipment leasing is one of the absolute best ways to get started with minimal risk.
