When Is Equipment Leasing the Right Choice?
It might seem counterintuitive to new business owners, but there are actually a lot of times when leasing the machines your business needs can save you money and get you to a return on your capital faster than purchasing the same machines. If that seems backward, remember that not every machine in your shop has the same life expectancy or upgrade cost. While it’s true that the specific structure of a lease is not always the best choice because of the trade-offs involved in leasing, those same trade-offs make it a great choice in situations where equipment loans could be quite costly. Here are a couple examples of scenarios where leasing is a lot more attractive because of its unique advantages.
Short Operating Lives
Often, mobile devices and computer resources are short-term investments in the business world. While a good server system or high end workstation might see a decade of use, most tablets and phones last only a year or two, and laptops rarely last longer than five. With the high cost of purchasing new machines for the whole business and the fast depreciation on used models, it’s often easier to budget upgrades when you don’t buy the machines. Leasing them for a year or two at a time means having someone else dispose of them when you’re ready to upgrade, and leasing the upgrade means you can move up with minimal additional costs. Just opt to let go of an old lease and then sign a new one for the next model of your devices.
Startup Equipment Leasing
Many small businesses find traditional equipment loans to be inaccessible because most lenders want to see two years of profitable operating history before lending, which is tough if you’re buying the machines you need to start operations up. The SBA offers options aimed at small businesses in this situation, but requires a significant down payment to help offset the risks. As a result, it’s pretty common for companies to have to pick and choose what pieces can be financed this way. Leasing allows you to affordably access equipment without a huge down payment, so it’s often easier to get everything for a new business on lease. Since lease costs are month to month, it’s also typically easier to get to a return on that overhead expense. New equipment leasing agreements do typically come with signing fees, but they are also typically a fraction of down payment costs, so it takes less effort to break even on those starting expenses.