Guide to Business Equipment Leasing

Many small business owners opt to lease their equipment from an outside source instead of purchasing it on their own. By doing so, they free up a significant amount of their working capital which can then be used to run and improve operations.

If your company is considering leasing some or all of its equipment, then here are 4 things that you should know:

(1) There are two main forms of business equipment leasing

When a company decides to lease equipment, it basically has two options. Either it can sign up for a true lease or a finance lease.

With a true lease, the company will make payments throughout the duration of the lease, but when the it has expired the company does not own the equipment. In this case, payments are relatively low, and they are usually tax deductible. The company also has the option to receive an equipment upgrade every few years and thus keep up with any advances in technology.

If, however, the company wants to eventually own the equipment it is leasing, then it could opt for a finance lease (capital lease). With a finance lease, payments are generally a little higher, and they are not tax deductible, but in the end ownership is transfered to the lessee.

(2) There are several payment options

Though the most common option is to pay on a monthly basis, a business can choose between several alternative forms of payment, depending on the business's own unique circumstances.

• A Skip-Lease: In a skip-lease, there is a set period of time throughout the year when the company can withhold payment without incurring penalties.This option may be particularly appealing to a company that does business on a seasonal basis.
•  A Step-up Lease: A business that is just starting out or is going through a major expansion may want to consider a step-up lease. In this case, payments are low at the beginning and then increases as more capital comes in.
• A 60-90 Day Deferred Lease: A new business may also want to consider a 60-90 day deferred lease. This allows the business to skip the first two to three months of payment so that it can build up its capital.

(3) There is room to negotiate

Many companies and financial institutions offer a wide range of equipment and soft assets for leasing. Moreover, some lessors specialize in certain industries or types of loans. Therefore, it is a good idea to do some research before you decide to lease from a particular company. In many cases you may even be able to barter down either the purchase price or the leasing rate.

(4) Intellectual or service assets are harder to lease

Assets such as software, training, or shipping costs are harder to lease simply because they are harder to repossess should you default on your payments. For such assets, it may be more suitable to apply for a small business loan or a business cash advance which is based solely on your future credit card transactions.