Every company needs equipment of some kind. From computers and telephones to delivery vans and forklifts, equipment plays an important role in business operations. Deciding how to pay for these items is a question every business owner must consider.
Because cash flow management is crucial – especially in a more challenging economy – leasing your equipment is an important option. In the long-term, a lease typically costs more than an outright purchase. However, leasing offers a number of distinct advantages, including:
- preserving your cash and credit;
- managing expenses;
- flexibility;
- tax treatment;
- access to better equipment;
- easy trade-up options.
For most companies, managing capital is a priority. The ability to access cash and credit wisely and control costs is crucial.
Keeping cash or credit available for items such as accounts receivable or inventory can help spur growth. On the other hand, capital tied up in purchased and depreciating assets is not accessible, and selling owned assets to access funds can result in a loss on your original investment.
Leasing typically requires no down payment and allows you to finance 100% of the asset. Sales tax is paid on your monthly payment rather than upfront which further reduces capital outlay. Leasing can help your company remain liquid and grow.
We all like having options, and depending on your company's financial situation, a lease can be flexible in both monthly payment and payment schedule.
Seasonal businesses may be able to pay less during slower periods. Stepped payments can allow you to pay more today and less in the future. With some suppliers and equipment, maintenance and repairs can be built into a lease providing peace of mind and no surprises down the road.
Establishing a "leasing line of credit" can make funds available for leasing equipment as you need it. Your available leasing credit will fluctuate as you enter into or pay off your leases.
You may not be aware that lease payments are considered a business expense and as such can be written off against earnings in the year they are paid. On a shorter-term lease this allows you to write-off your total expenditure quickly.
If you purchase equipment you can claim depreciation, but it can take many years to fully depreciate an asset.
We all know equipment can be costly. At the same time, having the right equipment for the job is important to success. Leasing can bring better and more expensive equipment within reach.
A lease can extend your ability to access better equipment by reducing the capital outlay associated with purchasing or borrowing. Borrowing to purchase usually requires a significant down payment - leasing typically does not.
Finally, some equipment, especially technology-based, becomes obsolete quickly. Equipment that will receive high use can wear out fast. In these situations owning the asset may not be worthwhile as you may need to replace it in a relatively short period of time.
During the term, if an equipment upgrade is required, certain leased equipment can be traded in for new. If you refinance with the same Lessor, you should benefit from a reduced payout balance on the existing lease, and the new lease allows you to acquire new equipment while keeping a consistent payment.
It is important to ask questions about trade-up, lease breakage, and end of term payout fee policies before signing your lease. These conditions are often hidden in the fine print adding additional expenses you did not anticipate.
Establishing a relationship with a leasing adviser is extremely beneficial. Patricia Lust, leasing manager at BlueShore Financial, comments, "When you work with BlueShore Leasing, you work with an adviser who takes the time to understand your business now, as well as your goals and vision for the future.
"Developing a long-term relationship, where your leasing adviser understands your needs and works with you is ideal. Our knowledgeable advisers have the experience and resources to help you realize you do have options when acquiring new equipment and will present the best leasing solution for your financial circumstances."
We invite you to discuss your leasing options with BlueShore Financial's leasing professionals.
