Equipment Leasing and How It Works
If you are a business owner who utilizes any type of equipment in your work, you may have wondered if leasing, as opposed to buying is a good strategy. The short answer—it depends. Depending on the financial standing of your company, the type of work you do and the kinds of equipment you require, equipment leasing may be a good option for you. In some circumstances, a modified type of lease, equipment financing or an outright purchase may make more sense. Understanding a few options in the equipment leasing arena may help you to make a more informed decision.
For long-term equipment needs, buyout leases sometimes provide you with a sensible solution. Buyout leases give you the option for purchasing the leased equipment at the end of the lease agreement. Depending on the type of deal, the buyout may be 10% of the cost of the equipment, or it may be for $1. Normally, for a 10% buyout lease, you would receive lower monthly payments on the lease as compared to a $1 buyout. If you use well-established technology in your business, then having the option to buy equipment that rarely needs updates or improvements might be the best option.
Another possibility is the capital lease program. In this type of lease, the owner of the equipment loans the money to the buyer. Capital leasing is similar to ownership, but you will not usually have to tie up huge amounts of operating expenses into equipment purchasing all at one time. The ability to pay for your equipment over time while still enjoying the tax benefits of depreciation can help your business to survive and grow. This type of equipment leasing can also be a good choice if your industrial technology is stable and your machinery never changes.
An operating lease is a type of leasing agreement typically used for short-term equipment needs. This arrangement allows you to pay for equipment as you need it. Expect to pay a higher monthly lease payment than some of the other long-term solutions, but you will pay for a shorter term. If your industry is in a state of constant change with numerous updates and platform changes, an operating lease may be the right choice.
Many other types of equipment leasing deals exist to fit just about any specific business needs. It is usually a wise idea to check with your accountant or tax adviser about the possible tax ramifications of any lease agreements you enter. Shopping around with various leasing companies and learning as much as possible about the different types of leases available may help you find the right deal to fit your needs.