Equipment leasing is a highly attractive financing option. Here we present you a few advantages and disadvantages it has.
Equipment leasing has one big minus and that is the fact that after your contract is over, the equipment is not yours. This can potentially turn into an advantage depending on the nature of the equipment. If you are leasing computer equipment, it may not be such a big disadvantage.
Total Expense. The cost of leasing equipment is generally higher than the purchase, but this is only assuming that you do not need a loan to buy it. Let us say that you are leasing computer equipment for a total of $5000 for 3 years, and that you pay a fee of $40 a month, the total cost would then be $7200.
Financing search. Being granted a loan is a long and difficult process. On the one hand, a financial institution will demand documentation that shows them your credit history for the past two to three years. On the other hand, an equipment leasing company will only ask for your credit history of the previous semester. This is clearly an advantage of equipment leasing.
Increase cash flow. One of the reasons why people prefer equipment leasing is the increase in working capital. When you do not have to spend a great amount of money in equipment during the first year, then you have more availability of funding fore your operations.
Leasing equipment may mean that you pay more taxes. When you do not buy equipment you reduce the amount of assets in your books and therefore the depreciations. Equipment leasing will be registered as commercial expense and your books will not show any asset acquisition.
Equipment leasing has an advantage when it comes to high technology equipment. Computers and state-of-the-art machines have a flaw, they lose their value faster than any other asset, which means that after two or three years they may be obsolete. Technology moves extremely fast, and it may be costly for you to buy expensive new equipment that will not be as efficient after a few years. However, if it is your company's policy to move equipment from one department to another then buying it would not be so negative.
Equipment leasing has one big minus and that is the fact that after your contract is over, the equipment is not yours. This can potentially turn into an advantage depending on the nature of the equipment. If you are leasing computer equipment, it may not be such a big disadvantage.
Total Expense. The cost of leasing equipment is generally higher than the purchase, but this is only assuming that you do not need a loan to buy it. Let us say that you are leasing computer equipment for a total of $5000 for 3 years, and that you pay a fee of $40 a month, the total cost would then be $7200.
Financing search. Being granted a loan is a long and difficult process. On the one hand, a financial institution will demand documentation that shows them your credit history for the past two to three years. On the other hand, an equipment leasing company will only ask for your credit history of the previous semester. This is clearly an advantage of equipment leasing.
Increase cash flow. One of the reasons why people prefer equipment leasing is the increase in working capital. When you do not have to spend a great amount of money in equipment during the first year, then you have more availability of funding fore your operations.
Leasing equipment may mean that you pay more taxes. When you do not buy equipment you reduce the amount of assets in your books and therefore the depreciations. Equipment leasing will be registered as commercial expense and your books will not show any asset acquisition.
Equipment leasing has an advantage when it comes to high technology equipment. Computers and state-of-the-art machines have a flaw, they lose their value faster than any other asset, which means that after two or three years they may be obsolete. Technology moves extremely fast, and it may be costly for you to buy expensive new equipment that will not be as efficient after a few years. However, if it is your company's policy to move equipment from one department to another then buying it would not be so negative.
About the Author:
Wade Henderson - recognized Professional - 15 yrs in the Business Finance Field - strong reputation for getting the deal done IMMFinancial.com Copiers & Duplicators Leasing Dental Equipment Leasing Get a totally unique version of this article from our article submission service
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