The Ultimate Equipment Leasing Guide
There is an eternal debate among business owners over whether it is smarter to purchase equipment for a company or if equipment leasing options have more advantages. Before deciding, we have pulled together some information on equipment leasing that not everyone knows or fully understands. While we do not intend this to be the final word in the equipment leasing discussion, we do hope it offers some clarity to the situation.
What equipment should be leased?
Equipment leasing is not the ideal financing solution for every business. Equipment leasing is beneficial to businesses that use equipment that needs to be upgraded regularly, like computers. Leasing also works for equipment that gets used so frequently that getting a new model can be justified every year or so, like forklifts or restaurant equipment. Likewise, equipment leasing is also a viable option for highly specialized equipment that would be very cost prohibitive to buy, but cannot be accessed at other facilities, even if it only sees use a few times every month or year – such as with medical or laboratory equipment.
No debt on balance
Purchasing equipment can be a very costly expense, and often involves taking out loans to buy the equipment, which translates to taking on a large amount of debt. Equipment leasing, on the other hand, is considered a regular expense, like utilities or rent, and therefore does not show up as debt on the balance sheet, which means that the company’s credit rating is preserved in case there is a need for some other type of loan or financing, further down the road.
Perhaps the biggest disadvantage to equipment leasing is that, because the business does not own the equipment, it cannot be used as collateral for further financing. Since most banks and lenders like to see assets with a dollar value attached to them, equipment leasing will not offer that benefit. However, equipment leasing also means that businesses do not have to deal with assets that are steadily depreciating in value every year.
Tax Section 179 states that payments made on equipment leasing can be claimed as deductibles on the yearly tax return. There are many free online calculators that will give an estimate of how much your business will save each year by leasing equipment. This benefit should be taken into account when figuring out your budget for your equipment, and it should help to decide whether it is wiser to spend the money upfront to own equipment, or if equipment leasing is the financially responsible route to go.