Leasing Equipment: An Option for Small Business Financing

Small businesses and starting businesses find it very difficult to obtain finance. Private loans are not easily qualified for and federal loans have precise requirements not easily met and are not widely available. When it comes to financing new equipment, leasing can be the solution.

Leasing Explained

Leasing consists on hiring an asset which remains the property of the lender but can be used by the borrower. The contract lasts for a certain time at the end of which the borrower has the option to buy the asset by paying a lump sum (usually a small percentage of the asset’s value). If he chooses not to do so, the contract ends or it can be renewed by replacing the leased asset with a new one. It’s widely used for cars and business equipment.

Benefits of Leasing Equipment

Leasing equipment has many benefits; it combines the advantages of renting equipment with those of possession by means of loan financing. Furthermore, the main advantage leasing provides is flexibility. Due to it’s mixed nature, most terms are subject to negotiation.

No Money Down

When buying equipment you need either to put money down or request a loan in order to purchase the equipment. When you lease, you pay monthly installments and get immediate tenure. It’s just like if you were renting the equipment only you’ll be able to acquire it if you want to at a later occasion.

Tax Benefits

When you purchase equipment, it adds up to your taxable assets. If you requested a loan in order to pay for it, you can deduct the costs, but the equipment remains your property. When Leasing, you only hold possession of the equipment, it remains property of the lender and thus, you can deduct the monthly payments and it won’t add up to your taxable assets.

Flexibility

If the equipment becomes obsolete, you can always request it to be replaced with a new one. Thus, you won’t suffer the consequences of obsolescence. You can have up to date equipment just by paying a monthly fee for it. Once you have no more use of it, disposing of it becomes the lender’s problem and not yours.

Given all the technological changes that occur everyday, chances are that you will make an excellent use of this leasing characteristic. When it comes to starting businesses and businesses in the technological field or technology dependent, leasing is definitely the best financial alternative.

Fast Approval

Since the asset remains property of the lender, leasing doesn’t have many requirements. The contract usually includes insurance policies attached to it so the lender get’s rid of certain risks related to the equipment and concentrates on its concern (financing).

Nevertheless a good credit history contributes a lot to getting a good deal on a leasing transaction. Bad Credit can increase the costs of leasing operations and since leasing is not the cheapest financial option, if you have really bad credit, it might be wise to consider other alternatives first.