Equipment leasing is the process of obtaining equipment from a lessor allowing the lessee to use them for a specific period through a rental basis. Some pieces of equipment may be too expensive for small business owners to purchase and maintain. Others become obsolete in a matter of time due to the new version introduced in the market. Before leasing equipment, there are some things that a business owner needs to know. Following is a simple guide to equipment leasing.
1. Choose a Leasing Company
When choosing a leasing company, consider the brand and its reputation. A company that is known will offer quality and legit services. Get referrals from professionals and friends that have worked with such companies before. Research online by checking the highest rated companies and contact them for more information. Look for experience and their ability to perform.
2. Kind of Equipment Needed
A business needs will determine the kind of equipment to release. The different equipment leases include a capital lease, operating lease, option lease, put upon termination lease, and fair market value lease.
3. Length of Time
The length of time to lease a piece of equipment depends on the size of the project. Most contracts last between 3 and 10 years. Some equipment leases are long-term, while others are short-term. For example, a capital lease is a long-term contract and non-cancellable, while an operating lease is short-term and can be canceled before the lease expires.
Having a budget indicating the amount of money to be spent on leasing is essential as it helps manage cash flows and operations in the company. When choosing a leasing company, look for one within the budget and balance with the quality services.
Some leases are taxed, while others are not. For example, operating leases are taxed, while capital leases have a deduction advantage from the 179 tax deduction policy.
Advantages that Leasing Gives a Business Owner Include:
- The business can access quality and up-to-date equipment.
- Payment is spread out monthly rather than paying a lump sum.
- A business owner has peace of mind as most lessors give maintenance services in addition to the contract.
- A company’s cash flow is improved as one pays only a portion of the equipment.
- A business owner can generate more cash by increasing working capital in other aspects of the company.