If you are a small business owner, equipment leasing can be the perfect way to save on upfront costs so that you can conserve your money for other important needs. Leasing is essentially renting equipment for a fixed monthly payment allowing you to enjoy the benefits of ownership without having to absorb its responsibility and costs. Since leasing companies usually do not require leasers to provide a down payment, you can save money on your initial equipment expenses. And, depending on the contract, you may even enjoy tax deductions on the cost of leasing.
The leasing industry has been booming lately in the wake of difficult financial times as many companies look for ways to cut down their costs. Although it may cost you more in the long run to rent as opposed to buying the equipment outright, some equipment leasing contracts also provide you with the option to buy the equipment at a depreciated price once the lease term has expired. If you do not need updated equipment this may save you money as you can take ownership of the equipment for a lower price and still use it for a number of years before it has to be changed.
There are two major kinds of equipment leasing contracts for you to choose from:
Operating leases. This type of lease contract allows you to rent equipment without any ownership rights for a relatively short term. While the leaser does not have to absorb any of the responsibilities of ownership they also do not gain any benefits from the lease, such as declaring lease expenses as tax deductible.
Capital leases. Also known as a conditional sales contract, this type of lease is undertaken by leasers who are interested in taking ownership of the equipment once the contract has lapsed. The price of the equipment can be added to the monthly payments, allowing you to pay for it over time and own it at the end of the contract. These lease contracts may also have terms for early termination, at the end of which you can buy the equipment at the prevailing fair market value.
Both types of equipment leasing contracts have their own specific benefits. For example, an operating lease has a relatively short-term, allowing you to quickly update your equipment by entering into a new lease contract once the old one has expired. On the other hand, a capital lease allows you to enjoy the benefits of the equipment without having to tie up your capital to pay for it.
When entering into a lease contract, make sure you study all the provisions carefully to ensure that you understand what you are entering into. In particular, look at the other fees that the lease company may be charging in addition to the monthly lease payments, such as late payment fees and early termination penalties. You should also look at the type of support the equipment leasing contract offers you such as regular maintenance of rented equipment and replacement provisions if there is a problem with the equipment.