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When Does It Make sense to Lease Equipment?

These days, almost everything can be leased. From computers to heavy machinery to complete offices, leasing is the solution for many companies.

The kind of business you are in and the type of equipment you think of leasing is a major factor is determining whether to lease or buy.

If you need to have one computer, it probably makes more sense to buy it and shell $2,000 for a good computer for business. On the other hand, if you need a dozen computers, it makes more sense to lease.

According to ELFA (Equipment Leasing and Finance Association), about 80% of U.S companies lease some or all of their equipment. “[Leasing is] an excellent hedge against obsolescence,” explains a spokesperson at the ELFA, “Especially if you’re leasing something like computer equipment and want to update it constantly.”

The advantages of leasing are well known: having to put a small amount of money down, if any, frees the business to have money for everyday operation. You’ll pay a smaller amount each month compared to a loan. Getting a fix financing rate instead of a floating one and the tax benefits can make it easier to continue operating the business. Getting an immediate access to equipment you need rounds out the benefits.

Here are the issues you should consider:

  1. What equipment do you need and for how long?
  2. Do you want to bundle the equipment and the service in one price?
  3. What do you anticipate the future needs of the company will be?
  4. How much will it cost to own the equipment.
  5. What are your options regarding upgrades and trade ins before the lease agreement period expires?

Leasing equipment makes sense to them

  • Andy Mason is a farmer of 2,800 acres near Jacksonville. Heis a 5th generation family farmer and works the land with his wife and son. “The equipment manufacturers can’t sell this stuff because they’ve overbuilt and oversupplied the market, and with commodity prices half what they were just a few years ago, we can’t afford to pay for it,” said Mason. “So it’s in my best interests to lease the equipment. The payments are lower than normal, and I have 100 percent warranty coverage so I don’t have to worry about repairs or maintenance.”
  • Sprint and parent company SoftBank moved on previously announced plans to set up a separate entity designed to acquire Sprint network assets for $2.2 billion, and then lease those assets back to the carrier.
  • Shawnee County is considering a change in thinking that involves leasing new equipment to replace deteriorating machinery owned by the Kansas Expocentre. Much of the equipment owned by the 30-year-old Expocentre is aging. Rather than continuing to pay for expensive repairs, Niska, the head of Expocentre suggested the county take advantage of municipal leasing programs.

“A good rule of thumb is to deal only with financing sources that have operated at least as long as the term of the proposed lease. Get picky when it comes to the terms, especially when it comes to casualty insurance to cover equipment damage and responsibility when it comes to paying personal property tax or handling repairs.” says Entrepreneur magazine.

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