Almost every business industry requires the right equipment to operate at its best performance. It is nearly accurate to say that equipment plays an integral part in a company’s success. Although the equipment is indeed necessary to function a business, it does not mean that it’s something that can be acquired easily. Especially for its expensive cost, most businesses do not possess the needed budget to obtain equipment. That is where Equipment leasing companies can help. According to the Equipment Leasing Association of America’s studies, approximately 80% of U.S. companies lease some or all their equipment from thousands of leasing companies catering to their needs. But what is Equipment leasing?
Equipment leasing
Business equipment leasing is one of the best options for companies and businesses with short budgets or who can’t acquire loans. Equipment leasing is a contractual and/or a financial agreement between the Lessor/Leasing company who owns the equipment, and the Lessee, the party that pays for the rights to use the equipment. An example is leasing office needs in an office equipment leasing company. The leasing company owns the office equipment that the Lessee needs. The leasing company can grant the Lessee the rights to use the office equipment through rental payment within the agreed period through the contract. These days, almost all sorts of business equipment are available for lease.
On the other hand, business leasing isn’t suited for everyone. Also, it has risks, just like other methods of acquiring equipment. To understand it more, below are the pros and cons of Equipment Leasing.
Advantages of Equipment leasing
Low maintenance cost – Sometimes, depending on the agreement, lessors provide specialized services such as maintenance coverage. This means you don’t have to shoulder the maintenance of the equipment, most of the time, lessors increase the payment for these services, but it won’t hurt that much.
Tax benefits – The rentals paid by the Lessee are considered as revenue expenses when calculating taxable profits. This can be an advantage for the Lessee as it can minimize the business’s tax liabilities. Saving you some cash in return.
Easier to upgrade – if the Lessee is careful enough about how the agreement is constructed, it’s easier to upgrade equipment when it’s leased. You can request an upgrade when a better version of it comes out. You can trade in your older models for a new one using the agreement terms.
Reduced cost – Since down payments are not necessary for leasing. You can save much money from it compared to purchasing through loans that include other long-term rates.
Disadvantages of Equipment leasing
No ownership – Owning the set of equipment comes with specific values such as tax credits and adds asset value to Lessee’s business. This can scare off investors because they might view Lessee’s leases as a liability. If you want to own the equipment, better think of financing, like how restaurants seek assistance from restaurant equipment financing to acquire their very own equipment.
Interest – You are paying the interest. If you avoided loans for their interest rates, it’s sad to say that you might still pay for interests. Average Interest rates may vary depending on the agreement, but most of the time, it’s at 5% APR (Annual Percentage Rate).
Limited usage – In some leasing agreements, there is a chance that the Lessor might limit the use of leased assets. These restrictions can be harmful to businesses and can potentially cause problems.
Limited Accessibility for New Businesses – If the business is young, leasing can be difficult. Even if the company possesses a good credit score or decent history, young businesses might need to forge better agreements with higher payments to acquire a lease.
Conclusion
Acquiring the best equipment for your business is an integral part of achieving quality service and efficiency in producing better outcomes. However, the equipment is most of the time out of the budget cost for its hefty price. There are different methods to help you acquire the needed equipment, just like equipment leasing. But of course, just like any other method, it also posse’s disadvantages and disadvantages that business owners might want to consider before trying it. In the end, it will all depend on each business owner’s needs.
Visit Noreast Capital now to get the business equipment you need. Only trust the best companies that can provide the best.