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Equipment Leasing Buyer's Guide - Why Lease?

Equipment Leasing Buyer's Guide - Why Lease?

Published: 04/18/2011

» Business Equipment
» Business Loans
»» Equipment Leasing

 

Why Lease?

One of the biggest reasons to lease business equipment is that it offers fairly minimal upfront costs. Unlike bank loans that may require a substantial down payment, two advance payments are generally all that are required at the beginning of a lease. This lets you keep your capital in the bank while making important investments in your business.

 

 

In addition, some companies lease equipment as a way to protect against obsolescence. When setting up the lease, take some time to evaluate the useful life of the equipment. Choose a term length that will let you upgrade to newer equipment before the old pieces are out‐of‐date.

 

 

Finally, leasing can lessen the burden that taxes have on your company's wallet. Depending on how your lease is structured, you may be able to fully deduct lease payments as a business expense, as opposed to depreciating the value of the equipment as if it were a capital expenditure. Talk to a tax professional to understand the impact this can have on your business.

 

 

 

 

What can you lease?

 

 

There are few limits to the type of equipment that can be leased. From everyday business essentials (furniture and phone systems) to industrial equipment (forklifts and conveyor belts) to office technology (copiers and LCD projectors), there is a wide range of products your business needs that you can consider leasing.

 

 

There are a couple of common features of commonly leased items. The total purchase is typically quite expensive, either per item or because you need many of them. Generally you won’t find leasing options for purchases under $5,000, and most leases are in the tens or hundreds of thousands of dollars. Second is that it’s something physical: a hard asset, not a “soft” asset.

 

 

While you can fairly easily lease business equipment, getting a lease to cover related soft assets or a soft purchase is much more difficult. Examples of soft or intangible assets include software, warranties, service, training, installation, and shipping costs. Why? Simple. From a lessor's standpoint, it's much easier to repossess a computer or copier in the event that you default on your payments. It is possible to get some soft costs included in a business equipment lease, but it’s less common; you may need to turn to a business loan to acquire those soft assets.

 

 

You'll want to make sure to inquire early on about your lessor's policies if soft asset financing is important to you.