What You Should Know About Equipment Leasing
No matter what industry your company is in, you will find that you need equipment. Whether you need basic computers or manufacturing machinery, these assets can be expensive and a drain on your cash flows. Therefore, you may consider equipment leasing. These are a few things you should know.
As with any lease, you do not gain ownership of the equipment you lease. You will make your lease payments for the duration of the lease period, but you won’t have an asset in the end. Instead, it will return to the leasing company or you will need to pay to purchase it. This also means that the machinery is not listed as an asset on your balance sheet.
Although leasing companies tend to be somewhat more lenient than financing companies, you may still find it difficult to find a business that will lease equipment to you, especially if your organization is new or has not built its credit. You need to have a strong personal credit history and a record of paying your bills on time to gain a lease if your company. Companies without financial histories or with poor financial histories may also have to provide a larger down payment.
Your lease has interest built into it. Typically, leasing companies charge around five percent APR, but this can be increased or decreased based on your credit and financial history.
First, your up-front costs tend to be less, especially if you had planned to purchase the equipment outright. However, even financed equipment may require a large down payment. In addition, your monthly payments are typically lower on leased rather than financed machinery. You can also set up flexible payments, such as monthly, quarterly or yearly payments.
Equipment leasing allows you to try the machinery before you buy it. You can also negotiate a short-term lease if you only need the asset for a limited period of time.
Finally, leasing your equipment allows you to consistently upgrade it. In today’s market, technology seems to become outdated almost immediately, but if you lease your machinery, any new features or automation are easily adopted. At the end of your lease, all you have to do is sign a lease for the newest model. Because you choose the length of your lease, you won’t be stuck with obsolete models.
Equipment leasing is a promising option for companies that have difficulty gaining financing or don’t have the cash flows to outright purchase their machinery. Consider these pros and cons as you investigate this strategy further.