Equipment Leasing & Financing FAQ
- February 11, 2016
- Posted by: Admin
- Category: Business plans
Many businesses use equipment leasing to accomplish their day-to-day needs. A wide range of commonly leased and financed equipment is available to various businesses, including vehicles, computers, medical machines, and restaurant seating.
- What does it mean to lease equipment?
When a business leases equipment, the leasing company or financial institution maintains ownership, while the business houses the equipment for its own use. The leasing company and business form a binding agreement regarding the length of the lease and the monthly costs associated with the terms of the contract. Leases can be renewed or terminated at the end of the contract period, based on the evolving needs of the business. Equipment leasing allows for more consistent spending and less out-of-pocket surprises.
- Why lease equipment?
There are many benefits to leasing equipment over buying. The biggest advantage is that the business is not responsible for purchasing the equipment outright or for selling it when it is no longer needed. When businesses are in their beginning stages, leasing equipment can be beneficial in order to acquire the more products for less initial cost. Businesses are also able to turn in equipment at the end of the leasing period and renew, or establish new contracts, for newer products.
- What is the difference between leasing and financing?
Equipment leasing is similar to renting, in that the leasing company maintains ownership over the equipment even after the contract ends. Leases are generally 6- to 12-months in length and can then be renewed for another specific period of time. With equipment financing, the company, bank, etc., owns the equipment only until the end of the agreed upon terms, at which time ownership is then transferred to the business. Leasing is usually less expensive month-to-month, while financing is more expensive up front but allows for an eventual change of ownership.
- Which option should I choose?
Deciding between leasing and financing can be tough, but when you consider the benefits and downsides of each option side-by-side, you’re sure to make the right decision. Firstly, you’ll want to think long-term. Has your business already become established, or are you just starting out? What types of equipment will you need to acquire, and what are their average life expectancies? Do you prefer a lease, which often comes with a more substantial warranty, or equipment financing, which offers less warranty options but the ability to own? Lastly, it is always a good idea to sit down with your tax professional to go over the implications of either option as it relates to your tax documentation. Either choice can be more beneficial come tax-time, depending on factors of which your tax professional will be highly knowledgeable.
Whether you decide on equipment leasing or equipment financing, you’ll have the ability to make steady monthly payments, house your business with what it needs to succeed, and streamline your business in order to make the best profit