Equipment leasing is usually a financially sound way to spread the costs over a designated period of time. Equipment leasing agreements typically run for up to three, seven, or ten years. However, before making any decisions on equipment leasing, business owners should look into all of their options and determine their budget and needs. This post is intended for business owners that are thinking about leasing equipment through the internet.
One of the biggest problems small business owners have with equipment leasing is the extremely high interest rates. This is primarily due to the fact that most equipment leasing deals are very long term. This means that the financial institution that issued the equipment lease is taking a very long term view of how long they want to see the profit from this deal. If you want to minimize your risk of incurring large debts, you will need to think about purchasing equipment outright instead of leasing it.
The problem with equipment leasing is that not many small business owners actually understand all of the fine details of the agreement. This is where an accountant or other financial professional can really help. It’s also a good idea to get a few independent financial estimates before making any commitments. While this is not a bad idea in general, the majority of equipment leasing companies typically only work with banks and credit unions. Equipment financing is still considered a high risk lending program by financial institutions, so it’s important to talk with a trusted professional to get all of your financing requirements in order.
When you are looking at equipment leasing, there are a few different types of arrangements that you will come across. The two most common arrangements are a term lease and an equipment-to-stock contract. A term lease is essentially a two year lease that you are able to renew at any point if you wish. Repayment begins when the existing lease comes to an end, which typically happens after your second year of business. An equipment-to-stock contract is very similar to a traditional lease, but the payments are lumped together instead of being paid out on an installment basis. This can be a good option for new businesses that have just received their start up capital because these types of loans require much less documentation and approval processes.
One of the main reasons why businesses prefer to go with equipment leasing instead of purchasing is because it offers significant tax benefits. In most situations, equipment leasing will deduct the cost of the equipment in the first year of the contract, while the tax advantage lasts throughout the life of the agreement. Equipment leases also offer the small business owner significant tax benefits due to depreciation. Some business owners may find it in their best interest to take advantage of equipment leasing because they provide the small business owner with a way of financing short term needs without having to worry about paying taxes on the amount financed.