Leasing equipment can help your business grow, expanding your capabilities and helping you keep up with and surpass your competitors. This article will explain how—there’s a lot to cover, so let’s get right into it.
What Is Equipment Leasing?
Equipment leasing is a financial resource available to small businesses. With an equipment lease, a leasing company provides you with an agreement to allow your business to use equipment they own for a specified period of time. Once the lease is over, there may be a buyout option or the equipment can be returned to the leasing company.
Leasing equipment provides small business owners with a number of advantages over purchasing equipment outright. Let’s take a look at some of those advantages:
How Leasing Equipment Drives Business Development
Upgrade Your Equipment Regularly
Technology is advancing at a rapid clip, and that can leave business owners facing an unpleasant decision: Spend an uncomfortable amount of money on upgrading or replacing their existing equipment, or fall behind their competitors.
Leasing provides an alternative solution. Equipment leases are available at a substantially lower monthly cost, and getting higher-quality equipment with extra features will only marginally increase your total monthly payments.
Reduced Initial Expenses
Leases require less money than traditional loans, both because they require low-to-no down payments and because most business equipment loans are fully tax deductible. This means you can often fully deduct the cost of your lease payments in the year they’re incurred. Be sure to speak with your tax advisor to understand how leases can affect your tax scenario.
These lower costs mean that businesses can afford equipment they wouldn’t be able to otherwise, giving you the ability to rapidly scale your business operations.
Pay Over Time
To purchase equipment outright, you’ll need either cash on hand or a loan. These things can create challenges for small businesses that may not have the money or the financing options needed to upgrade or expand their equipment. Equipment leases are paid off over time, freeing up cash and allowing businesses with limited revenue to improve their operations.
Cash Flow
Leases are not long-term debt; this keeps your debt-to-revenue ratio healthier, allowing you to access financing that you might not be able to otherwise. The monthly payments for leases are lower and more predictable. These advantages, along with the tax advantages we’ve discussed, mean that working with a leasing company can significantly improve your cash flow.
Guide To Leasing Equipment For Small Enterprises
Equipment leases can help your business grow, but it’s important to come up with a strategy for what equipment you’ll acquire and how you’ll negotiate your lease. This brief guide will help. Let’s start with some common terms:
- The cap (capitalized) cost is the purchase price of the equipment.
- The lease term is the length of the lease.
- The residual value is the estimated value of the equipment at the end of the lease.
- The disposition fee is a fee you may be charged if you don’t buy the equipment at the end of the lease.
- Depreciation is the amount the equipment’s value decreases over time. Your accountant or tax adviser will take care of this entry.
In addition to these terms, leasing companies will often impose certain restrictions on how the equipment can be used. One of the most common, seen on vehicle leases, is a mileage allowance, dictating how many kilometres the vehicle can be driven in a given year. These terms are set in order to limit depreciation over the lifetime of the lease.
When negotiating your lease agreement, you can focus on the cap cost,the disposition fee, and the restrictions on equipment use—though fewer restrictions can mean an increase in depreciation.
To get the most out of your lease, you’ll want to know what equipment you want to lease and for how long. Here are a couple of questions to help you understand what you can afford:
- What’s your budget? Add the cost of your monthly lease to your cash flow, and see how it’s affected. Aggressive expansion can be a good thing, but if you find yourself saddled with payments you can’t make, it can destroy your business. Find a happy medium between expanding your business and keeping your expenses under control.
- When will the equipment become obsolete? One of the best things about leases is that you can upgrade equipment more frequently. When equipment tends to become obsolete quickly, short lease terms that you don’t need to buy out at the end of the contract are an excellent choice. For equipment that retains its usefulness for longer, consider a longer lease term with a buyout option.
- How does your revenue fluctuate over time? Many businesses are seasonal or otherwise impacted by seasonal and other trends. Fortunately, the structure of a lease can be incredibly flexible; some businesses may pay for their leases annually or semi-annually. We can even arrange to have you pay more during the months you’re earning more, and less in months when you expect revenues to dip.
Conclusion
Leasing equipment can help you acquire necessary equipment without having to finance equipment purchases. Leases come with lower upfront costs, potential tax benefits, and the ability to upgrade and expand your fleet of equipment to spur business growth.
Interested in leasing equipment for your business? Our Winnipeg lease company is here to help. We’re Falcon Leasing, and we’re experts in equipment leases across all industries, including agriculture, manufacturing, healthcare, recreational and many more.
Contact us today; our team will be happy to talk to you about our lease options. We’ll help you acquire the equipment you need to grow your business.
