Learn the Essentials of Equipment Leasing
If you plan to invest in new equipment for your business sometime soon, and were considering a loan to finance the purchase, you might also want to look into leasing as an option. If cash is in short supply, and the equipment you need may become quickly obsolete, leasing rather than buying can be a good option.
No matter what type of business you are in, almost any equipment you’d need to buy also can be leased. Companies of all sizes, from sole operators to Fortune 500 firms, use leasing. According to the Equipment Leasing Association (ELA), about $218 billion worth of equipment is leased by U.S. businesses each year.
Leasing can conserve cash. While a loan usually requires that you invest a down payment in the equipment, a lease generally needs no down payment and finances only the value of the equipment expected to be used during the lease term. And when you buy the equipment outright, you assume any risk of it becoming obsolete. Leasing transfers the risk of obsolescence to the leasing company, for a price, since there’s no obligation to buy the equipment once the lease expires.
Leases are not loans, so their costs are calculated differently. Payments on an operating lease are considered an overhead expense that you can deduct from your business income. Generally, however, the cost of leasing is similar to the cost of other financing options when you consider the entire transaction.
Flexibility is another leasing hallmark. You can tailor a lease to fit your month-to-month, seasonal or annual cash flow needs. And if customers or the competition demand that you always have the latest technology, a short-term lease can help you get what you need and keep your cash.
The ELA, a trade group of leasing companies, has created a special Web site called Choose Leasing that explains leasing basics. Areas covered include how to lease equipment, leasing benefits, loan/lease differences and leasing terminology. The site also has a handy search feature to help you find a leasing company. Visit www.chooseleasing.org.
To learn more about small business loans and leasing, contact SCORE "Counselors to America's Small Business." SCORE is a nonprofit organization of more than 10,500 volunteer business counselors who provide free, confidential business counseling and training workshops to small business owners. Call 1-800/634-0245 for the SCORE chapter nearest you, or find a counselor online at www.score.org.