Guest Blog Post Authored By: Michael Dubowec, Chief Operating Officer & Executive Vice President, National Leasing
Equipment leasing is a valuable tool that all business owners should keep in their toolbox.
It’s an alternative to purchasing or traditional financing and has specific benefits that can make it more ideal depending on your situation, industry, and business goals.
Below, you’ll find our complete guide to leasing. We’ve included a video and FAQ to equip you with everything you’ll need to know for your next equipment lease.
Equipment Leasing Frequently Asked Questions
What is equipment leasing?
Equipment leasing is a form of acquisition that’s alternative to purchasing or traditional lending. The leasing company purchases equipment and then lends it to the user in exchange for periodic lease payments. Users can either enter into an operating lease, which is similar to a rental, or a capital lease, where the user assumes the benefits and liabilities of ownership.
How does it work?
First, you’ll shop around and find the equipment your business needs. Almost any type of equipment is available to lease with some dealers even offering in-house leasing for their equipment. If leasing isn’t offered, you can contact your leasing company. They’ll work with you to structure a lease for your business and then work with the equipment dealer to get the equipment in your possession.
How will my payments work?
Before the lease, you and the lessor will structure payments to match your business’s needs. Payments are flexible and can be scheduled in monthly, semi-annual or annual installments.
Do I need to make a down payment?
Generally, no down payment is required. But making one will lower the cost of your payments and may be necessary depending on your credit.
Are there any sort of tax benefits?
You can potentially claim your lease payments as a tax-deductible expense; however, always consult your accountant to see what’s possible.
What if I’ve already purchased my equipment but still want to free up my cash?
Some leasing companies offer sale-leasebacks. The leasing company will buy your equipment and lease it back to you so you have cash for other business expenses. Some conditions apply so make sure you speak with your lessor to see if you qualify.
What happens at the end of my lease?
You can choose from a number of end of lease options, but don’t let the “end of lease” part fool you. You’ll determine your end of lease option at the beginning of your lease before you get your equipment. You’ll see all your end of lease payment options here, but a few of the more popular ones are the $1 buyout, Fair Market Value option and 10 per cent buyout.
What are some advantages of leasing over traditional financing or buying?
There’s no consensus; instead, the more optimal choice will depend on your business. We cover leasing vs buying here, but you should answer some important questions about your business before making your financing decision. Ask yourself how sensitive is your cash flow or line of credit for equipment purchases? Does your desired equipment have a high rate of obsolescence? Do you want to possibly claim your tax benefit in the short term through leasing or long term through depreciation?
If you prefer to keep your cash for other business expenses and potentially claim your tax benefits in the short term, leasing may be more optimal for your business. Your best bet is to speak with your accountant and explore your options.
What can I expect from a leasing company?
Service standards vary, but lessors generally try and keep their applications short and easy to complete. For example, our application takes five minutes to complete. We guarantee a two-hour response time for general inquiries and a four-hour response time for customer service needs.
So how do I start my first lease?