Equipment Leasing - Updated
A financing option often overlooked that is available for franchises that require equipment to operate their business is to consider equipment leasing. Franchisees can finance the purchase of vehicles, proprietary equipment, security systems, computer hardware, software, flooring, outdoor signage, and other tangible items needed to run the business with an equipment lease. The following are 4 key benefits to your business of leasing equipment:
- Conserve and Control Cash. Equipment leasing saves your working capital for day-to-day business expenses, business expansions, or unexpected business-related expenses. In addition to saving your working capital, a lease provides a pre-determined monthly line item, which can help you budget more effectively. With predictable monthly expenses you can develop long-term plans for your business with confidence and get your business set up with the equipment you need, while keeping your cash flow available for other expenditures.
- Upgrade outdated Equipment. Depending on your business type, equipment leasing can help you stay on top of the latest advances in equipment and technology. How long do you plan to keep the asset? If you're only planning to keep it for the short term, you may find that leasing is a better alternative than buying it and trying to resell it when you no longer need it. You can also determine the length of your lease, so if you work with technology that changes rapidly, you can take on a short lease to ensure you’re always at the cutting edge in your industry.
- Tax Benefits. Lease financing presents your business with tax benefits with a full deduction of lease payments against current earnings. It also preserves working capital that you wouldn’t have access to if you had to purchase your equipment up front. Check with your tax advisor to determine the tax benefits of leasing for your business.
- More Attractive Balance Sheet. Monthly lease payments are viewed as a business expense instead of long-term debt. Having little debt on your balance sheet helps you secure financing to fund your business.
The manufacturers of nearly all equipment that is costly will offer equipment leasing. Most leases are usually capital leases so the equipment will be owned by the business at the end of the lease term. The typical lease for a start-up business will require a 20% down payment and repayment term will be 36 months. The typical terms of an equipment lease for an existing company requires a down payment ranging from a lease payment up to 20% of the amount financed. Lease documentation fees range from $95 to $495 and repayment terms range from 12 months up to 60 months. If the plan to keep the equipment long term, a typical capital lease offers a $1.00 end of term purchase option. The owner(s) are required to personally guarantee equipment lease, but the good news is that the equipment is the only collateral required!
If your equipment requirements are relatively small and you have the money or can get a low-interest loan, then buy the equipment. If you require a substantial amount of equipment, why tie up a large amount of cash especially when you could use that same money to grow your business in other ways?
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