For many small business owners, buying and maintaining equipment is out of the question. The expense, investment and upkeep, coupled with near-constant upgrades and versions, makes leasing equipment an attractive alternative. That said, some small business owners can be sceptical about this form of equipment procurement due to reduced ownership.
This in-depth guide provides everything you need to know about the equipment leasing process, helping you discover both the benefits and drawbacks of leasing, how to go about the process and whether or not it’s right for your business.
Equipment leasing allows companies to lease or rent equipment without the significant cost of buying new. Much like renting premises, leaseholders pay a monthly fee for a set period. When the lease is up, you may have the option to purchase the equipment outright, extend your lease or go for an upgrade.
And though hiring and purchasing equipment might seem similar, there are a few important distinctions to be made. When your leasing contract ends, you don’t automatically gain ownership of the leased equipment, although you may be offered the option to purchase it, renew your lease or upgrade.
With hire purchases, you pay an initial deposit followed by set monthly instalments. Once your balance is paid in full, you will own the equipment outright.
It’s important to note that your lease agreement is likely to be with a third-party service and not provided directly by the equipment supplier.
There are a wide variety of equipment leasing options, each with their own different ways of working.
Operating lease agreements
If a business chooses to go with an operating lease, they’re allowed to use the given equipment, but they aren’t provided with any ownership rights. Typically, these belong to the leasing company or financial institution.
A lease-purchase agreement, another example of an equipment lease contract, involves the business leasing the equipment entering into a pledge to buy the equipment once the term ends. Another alternative, known as a lease option, gives businesses the choice to buy the equipment either during the lease period or at the end of it.
Open-end and closed-end agreements
Then there are open-end and closed-end leasing agreements. With the latter, no money is obligated when the lease period ends. Thus, equipment can be given back without incurring additional costs.
An open-end lease, on the other hand, involves small monthly payments that end with a much larger “balloon payment” when the lease period ends. While this means a business can maintain its cash flow, the final payment may be more than if they’d bought the equipment outright.
Almost everything you need for your business can be leased. Products vary per company, but most leasing companies will offer leasing arrangements on various pieces of equipment, ranging from coffee machines and IT equipment to rolling roads and industrial washing machines.
Leasing can be a safer option of acquiring high-risk equipment that is likely to need regular repairs. Depending on your agreement, your leasing company may also pay for general maintenance. Equipment leasing is not for everyone, but it can be beneficial for small businesses looking to get started, as well as for larger companies to keep up with new technologies without a significant cash outlay.
So how does equipment leasing stack up in comparison to purchasing? While there are undoubtedly many plus points that can serve small businesses well, it’s also worth noting some of the drawbacks before you go through with the process.
Leasing options offered by equipment suppliers could actually be the best deal. Because companies want to maximise the sales of their equipment, the rate offered by their leasing partner could be more competitive than you think.
If you’re a small or medium business owner, equipment leasing could be the cash-flow-friendly solution you need to keep your tech up to date and your company relevant. Just be sure to check that it will be cost-effective for your business and shop around for the best deal.
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Before you go ahead with an equipment lease, consider the following:
Equipment lease providers differ in type, rates and benefits, so it’s essential to compare what’s out there so you can find a company that’s right for you and your business. There are three different types of provider which are as follows:
After you’ve collected price quotes from at least three companies, it’s a good idea to enquire further by asking them the following questions.
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