Equipment Leasing Overview
A big issue for small business is having enough capital to grow the business and pay for day to day operational expenses. Meeting payroll and buying inventory puts a real strain on cash. Financing your equipment provides your business with a source of funding that is separate from your bank, lines of credit, credit cards or cash. Equipment leasing frees up your working capital for other business expenses.
Putting down a large sum of money for a piece of equipment can be dangerous. This can leave your business asset rich and cash poor. Without cash a business cannot respond to market changes and new opportunities. A great way to be able to secure the equipment need to grow a business or improve operational efficiencies is to lease.
Benefits to Equipment Leasing
Tax Advantages – When you buy equipment with a loan it is depreciated over several years. When you lease equipment, the lease monthly expenses can be deducted in the current year. Depending on your type of lease you may qualify for the Section 179 Deduction (see our tax calculator for more details). Consult your tax advisor for your specific situation.
Easier and Faster Than A Bank – Banks required more detailed information, credit history and oftentimes detailed financials for a loan. They also may reduce your credit line because they may only be willing to give you a certain amount of total credit which includes the equipment loan amount. The bank loan process is lengthy and they very rarely can have a quick turnaround. With an equipment lease, financials are not required and typically only a one page application is required. Most leases take 1-3 weeks but in some cases can be done in 24-48 hours if needed.
Expense vs. Debt – When you secure a bank loan for a piece of equipment this goes on your business financials and credit as a debt. An equipment lease is booked as a monthly expense thereby improving your financials and net worth.
100% Financing – Leasing equipment allows you to finance all the costs associated with the equipment. With a lease you can roll in the installation and training costs and the down payment is significantly less than with a loan.
Avoiding the Technology Trap – Considering the rapid pace at which technology is advancing, equipment leasing is the perfect option for equipment that has a short life span or is out-of-date quickly. With an equipment lease you can structure a shorter 2 or 3 year term and at the end of the term return the equipment. This leaves you free to lease the newer updated version.