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It’s smart to use equipment lease for office equipment and machinery than using working capital or cash

Liberty Capital Group | Small Business FundingBusiness Loans ArchiveIt’s smart to use equipment lease for office equipment and machinery than using working capital or cash

May

29

It’s smart to use equipment lease for office equipment and machinery than using working capital or cash

For someone starting a new business or establishing an office, getting the required equipment to get the office up and running is one of the most important things. Even in cases where the company is already well established; they still need to find up to date machinery. Being well equipped can make a huge difference for a company in the job the market. But office equipment is not cheap to buy, especially when it is to be bought in large quantities. And since new models keep on being released, trying to keep up with competitors time and again can be nerve-wracking and quite expensive.

If there is not enough funding and you don’t want to use work capital or cash to buy your equipment, there are a number of alternatives present. One of which is through equipment leasing. Although these are all dependent upon the money present and personal preference. But in order to address which is better, we should clearly understand the aspects of both methods.

Office Equipment Leasing

There are a number of companies that allow leasing a piece of equipment for an amount of time during which the one leasing the equipment pays off the amount as rent. In simpler words, it is like loaning equipment for a period of time like rentals. Although a down payment has to be made when leasing office machinery when compared with the interest rate of credit card deposit, it seems like a better option.

Equipment leasing allows you to get your office equipment for a period of time before it gets outdated. After a couple of years, you can give back the leased equipment and get a new one that matches your requirement.

Once the time period during for which the equipment was leased comes to an end, there are a number of options available. You can buy the equipment if you still require it. The price is quite fair when it comes to buying lease equipment. You can lease new equipment if the requirement is not being met by the current one. Or you can continue to lease the existing equipment by increasing the duration.

Kinds of Equipment Leases

There are two kinds of equipment leasing available. Operational lease and financial lease. Both of these are discussed in detail below.

  • Operational Equipment Lease
    This type of lease allows the company to rent the equipment for a period of time. During this time, the ownership of the equipment is not transferred to the company. The time of this lease is less than the economic value of the equipment after which the lessor sells the equipment.The leased equipment is not listed as an asset of the company and therefore will qualify for incentives of tax. Equipment leasing is financially advantageous in these regards. Even though leased equipment is not an asset of the company but there are still some legal obligations that are to be fulfilled.
  • Financial or Capital Equipment Lease
    Another type of leasing is the financial lease. The difference between operational and financial lease lies in the ownership of the equipment. However, the structure is the same. The equipment is listed as an asset of the company that leases it. This increases the liability of the firm and its holdings.Large firms and enterprises are more inclined towards this type of equipment leasing as it has more advantages in tax depreciation and interest expense on the lease. Once the time ends, the equipment can be purchased by the company.

Finance Providers

There are different types of equipment finance providers. There are lease companies that provide equipment from manufacturers and dealers. There are independent lessors that provide equipment on lease to the companies directly. Examples include banks and financial companies. Then there are brokers. Lease brokers are an intermediate between lessees and lessors. It is more expensive to hire a lease broker as compared to getting equipment on lease from companies. Although, it can have an advantage if you want to have equipment on a wider scale.

Buying Office Equipment

If you get a new office, the first thing on your mind would be to buy the equipment needed. It is necessary to make the office functional. Buying is also the easiest way to get the things you require. You don’t have to go through the hassle of going through contracts and agreements. You can go to the manufacturer yourself, order the amount of equipment you require and get it shipped to your office. However, it is a little expensive when compared to leasing a piece of equipment. Therefore, buying is better when you require items that are inexpensive. For expensive ones, it can leave you financially drained.

Another advantage of buying equipment for your office lies in the fact that you are under no obligation to look after it. Once it fulfills your purpose and you decide to get a new one, you can decide what you want to do with it. The equipment can be sold or given away as per your needs.

Another thing to look for when considering buying a piece of equipment is the fact if the item you are buying is technology driven. For such items, it can have a disadvantage in the regard that technology is continuously being updated. You would have to buy new equipment every time the previous one becomes outdated. This will become a strenuous process financially.

When a piece of equipment is bought, the maintenance of the equipment also becomes the responsibility of the owner. This means taking up the expenses if the machinery breaks down.

Advantage of Equipment Leasing over Buying it

There are two sides to everything. There are pros and there are cons. Both these methods have their fair share of pros and cons. making a smarter choice, depending upon the situation, means considering all the factors and deciding which is better for your company.

  • Fast Adaptation to New Technology
    When it comes to getting technology-based equipment for your office, if you make the choice of buying the machinery you require, that means getting stuck with it until you feel that it is absolutely necessary to change it. Since a great deal of money is spent to get the required equipment, you will always find reasons to not replace it.Leasing a piece of equipment is different. You do not have the ownership of the machinery. Its maintenance doesn’t fall under your care. And you don’t have to worry about getting a piece of new equipment once the current one becomes outdated. You can use the equipment for the time duration you have made the contract for and then lease a new one.The reason for this is that technology is rapidly changing. New and updated versions are always coming out in the market. In order to compete in this rapidly growing market, you also need to have up to date technology. Buying a new one every time an updated version is available can be financially crippling. Therefore, while considering technology-driven equipment, it is better to lease it for the required time than to buy it.
  • Less Expensive for New Business
    When starting a new business, the investment money is small and the resources available are smaller. Many small business startups find it hard to balance out their finances. Leasing a piece of equipment for your office is comparatively less expensive than buying a new one. With periodic payments, you can even lease out expensive equipment for the time of your need. Especially for new businesses, people often find it out of question to get equipment for their office because of the scarcity of the funds available to them. Leasing opens up more avenues for you. It makes you acquire the equipment at a less initial cost. And it doesn’t have a major effect on the cash flow.
  • No Maintenance Cost
    Since the assets you acquire through operational lease do not come under your ownership, therefore, if the machinery fails or break down, you are not responsible for repairing it. You don’t have to worry about the maintenance cost as well. It is overseen by the leasing company.In comparison, if you buy equipment that is already costly and it breaks down; the repair will be expensive as well. You will have to take good care of it and keep it properly maintained. The responsibility of the equipment falls over your shoulders.
  • Flexibility in Tax Payment
    Another advantage of leasing a piece of equipment over buying it is in the flexibility of paying the sales tax. If you buy an equipment, you have to pay the sales tax at the time of purchase. If the amount of items is large, the sales tax increases in amount as well. But when you lease an item, the sales tax spreads over the time period for which the item is leased. The amount you pay throughout is very less as compared to paying it a single time.
  • Qualifying for Tax Deduction
    We all know the amount of tax we pay on everything these days. When you purchase a piece of office equipment or a piece of machinery, you have to pay the sales tax. There is no loophole here, you can’t escape the tax. But on the other hand, if you lease an equipment, you actually qualify for getting your tax deducted. This is because upon leasing, the ownership is not transferred. Therefore, the equipment leased is not considered the property or an asset of your company.

These are some of the advantages that come with leasing a piece of office equipment. However, the decision is totally in your hand. You know your business better than anyone else. You have to make the smart choice.

Considerations to make before leasing an equipment

Before you decide to lease a piece of office equipment, there are a few factors that should be considered. While leasing does have its advantages, it all depends upon the condition under which the equipment is to be used.

The first consideration should be if you want to opt for an operational or financial lease. Both have their set of advantages and disadvantages. It all depends upon what works best for you. Another thing to be considered is the monthly budget. Since you will have to pay some amount of money each month, before you lease an equipment, you should have a budget plan for each month to see if you can take out the money that is required to be paid. The amount of time for which the equipment is to be used should also be considered. If it is to be used for years to come, it might be better to purchase the equipment than paying for it in small amounts each month. Leasing can be expensive in the long run. Once the time for the lease ends, you will have to pay the fixed amount for the equipment each month if you want to continue using it.
Another factor to be considered is the duration for which the technology will last. If you predict that the equipment you are purchasing has a technology that will become outdated soon, it is better to lease the item and then get ones when the market changes. But if you see that the technology will stay for a couple of years and the value of the equipment is fair, you should consider buying the item instead.

It’s smart to use equipment lease for office equipment and machinery than using working capital or cashGilmar 3:00 am May 29th, 2019