Authored by Kristian Keefer in Small Business
Published on 01-25-2009
Many businesses opt to lease rather than purchase their business related equipment. There are several advantages for a business that leases equipment rather than purchasing the equipment using revenue from the business or by taking out a loan.
Business office equipment and other products that are necessary for the operation of a business, can be very expensive. Every business needs some equipment to run a successful business. The cost for this equipment varies from business to business, and in some cases can be quite high. Therefore, some businesses opt to lease equipment.
It is often easier for a business to be approved to lease equipment rather than being approved for a loan or line of credit to purchase the equipment. Businesses are often required to provide three or more years of financial documents for their business in order to obtain a loan. A detailed business plan and other paperwork is often required as well. There are usually fewer requirements for a business to lease equipment. Sometimes paperwork for just six months to a year is all that is needed to secure a leasing contract.
A business often does not have a large cash flow to purchase equipment. It is especially difficult for new businesses requiring expensive equipment. This brings to the forefront another advantage of leasing the equipment. The lease programs often do not require a down payment or if they do the amount is small enough to be reasonable for the business to afford.
The ability to return equipment if it is no longer needed for the business or if there are other problems, is another reason to lease rather than buy. When a business buys equipment they are stuck with it if it does not meet their needs in the future. The business then needs to try to resell the equipment or find some other way to recoup some of the money they paid for the products. Most leasing programs allow businesses to return costs at any time. Businesses must beware though that there are typically fees for ending a lease early.
If a business needs to obtain a loan for something other than equipment, it might be more possible to be approved if the business equipment is leased rather than purchased. Some leasing programs are not reflected in a credit file for a business. Therefore, the lease does not diminish a company’s projected cash flow to pay the monthly loan payment. A bank or other lending institution is more likely to approve a loan than they would be if the business had one or more loans used to pay for equipment.
A business can be more flexible to change with the times if they lease rather than buy equipment. As new advances in technology for office and business equipment are announced, a business can more easily lease new equipment. If a business purchased all their equipment they would be at a loss if they needed to purchase new equipment and could not liquidize the old products.
Leasing equipment is a good idea for businesses that do not want to put out a great deal of cash for the equipment they need. Only a small (if any) deposit is needed to lease equipment. Easy monthly payments can then be made for the duration of the lease.