SIX REASONS WHY YOUR BUSINESS SHOULD LEASE ITS EQUIPMENT
The quickest way to expand and evolve your business is leasing equipment. Whether you need more trucks, faster laptops or new furniture, renting instead of buying those items can help you gain access to the best technology, maintain flexibility to update your equipment quickly, and even save money in the long term if done through the right financing.
“Most people think of leasing bigticket items like million-dollar construction or medical equipment, but you can lease just about anything your business needs,” said John F. Unchester of First American Equipment Finance, a City National Bankowned equipment leasing company.
“People don’t always realize that we’re very interested in working with businesses that are expanding, so we put a lot of resources into serving them. We want to be there when you’re ready to grow,” he said.
Even if you have the cash on hand to purchase what you need, consider the following benefits of leasing before you write a big check:
1. You’ll save capital. There are plenty of alternate ways to use your liquidity rather than buying new stuff— like hiring new employees, stocking more inventory or expanding a facility.
2. You’ll avoid the sinkhole of obsolescence. With a lease, you can exchange your equipment for something more advanced. Of course, you can always buy the equipment. But should you pay $1 million for technology that will change in two years? Probably not.
3. You’ll remain flexible. A purchase commits you to a technology or strategy for a longer length of time than a lease.
This is especially true for purchases that involve your core business offerings. Depending on your business, for example, you might be able to work with aging printers or copiers, but if you have a healthcare company invested in outdated radiology machines, your entire business could be compromised. Leasing technology allows you to adapt your business quickly as your industry evolves.
4. You’ll reduce your tax liability. With a conventional loan, only the interest is deductible, but if your lease is structured correctly, you may be able to expense 100 percent of the payments.
5. You’ll shift a capital expense to an operating expense. Many companies find their cash budgets bursting at the seams, especially as the year comes to an end. But business needs and opportunities have little regard for those seams!
A lease gives you a way to get the equipment you need without blowing up your capital budget, and shifts your equipment expense into your operations column, said Unchester.
6. You’ll gain predictability. Some investments such as complex technology implementations involve unpredictable costs through updates, repairs, etc. With a lease, the company from which you’re renting takes care of the maintenance, and you make fixed monthly payments, which means fewer surprises and better cash reserves.
Once you decide to lease new equipment, you’ll need to find the right financing partner. Of course, you should consider cost, but it’s also important to look beyond price. “You want to work with someone who can get the deal done. If you go with someone who promises the best rate but can’t close the deal, you’ve wasted your time. And time is money,” said Unchester.
He recommends working with the bank directly instead of an intermediary like a broker. “Brokers don’t have the capacity to execute the lease,” he said. Also, look for transparency and clarity, and make sure all terms and fees have been put in writing. If something isn’t clear about the contract, speak up.
Lastly, you should always look towards the future. “Will you need credit, a mortgage, treasury, or other banking services? Can this institution bring value beyond this deal?” asked Unchester.
The foregoing information is provided as a courtesy of City National Bank (CNB). Unless otherwise stated, opinions expressed are those of the respective authors and not necessarily those of CNB. The information is provided without warranty and no recommendation or endorsement by CNB is intended or should be inferred unless specifically stated.