5 Things You Didn’t Know About Equipment Leasing
Equipment leasing is becoming a very popular alternative to purchasing equipment. Many business owners like to espouse the virtues of how much less expensive equipment leasing is, but very few sources actually get into exactly what entrepreneurs are getting when they sign an agreement.
Zero Debt on Balance
Equipment leasing is a lot cheaper than taking on debt upfront in the form of a loan to purchase equipment. Equipment leasing is viewed as a regular bill – like utilities or rent – and therefore does not negatively impact a balance sheet.
Equipment Leasing = Not Extra Assets
Equipment leasing means that the machines and appliances you need to run your business are not yours – you are renting them from an equipment leasing company. This means that leased equipment is not considered an owned asset, and therefore cannot be used as collateral to secure a loan further down the line.
One of the biggest perks of equipment leasing is that – much like smartphones – business owners have the option to upgrade their equipment periodically. This gives entrepreneurs a competitive edge by getting access to the latest and greatest equipment. To contrast, purchasing equipment leaves owners with depreciating machinery, while equipment leasing foregoes all of that to bring lessees the newest models, as they become available.
You Have the Option to Buy
Many equipment leasing agreements have the option to buy the equipment for the remaining price (plus fees) when the contracts come to an end. This is very good for newer businesses that are amassing revenue to make larger purchases. Equipment leasing already puts money toward the overall price of the machinery, and then the remainder is a fraction of the total cost, making the purchase very feasible.
Get Highly Specialized Equipment
The more specialized a piece of equipment is, the more money it costs to purchase, which can put a huge strain on cash flow – especially if that piece of equipment is only a used for certain processes or orders. With equipment leasing, business owners forego the heavy upfront cost associated with buying the equipment outright. Plus, that specializes piece of equipment is located on the premises, with a low monthly cost that will not cause a big strain on the company’s cash flow.
After looking at the benefits and disadvantages of equipment leasing, it should be pretty obvious why equipment leasing is rising in popularity for operations of all sizes, run by both new and established business owners looking to save money while keeping options open.