Did you know that approximately 80% of U.S. companies lease some or all of the equipment they use to conduct business? When it comes to leasing equipment in today’s business world, people often think about standard office equipment such as printers and copiers, but there are multiple types of equipment used to conduct business that can be leased — from forklifts and phones to software and surveillance systems and everything in between.
When a company evaluates a "lease vs. buy" decision, there is no one correct answer; each situation is unique and there are always pros and cons. For example, your credit score could play a role in your ability to obtain a competitive loan rate, or your organization’s tax situation could be a factor in whether you should lease your office equipment rather than take out a loan or purchase it outright. It’s important to note, however, that lease payments can often be deducted as a business expense.
Leasing business and office equipment comes with a variety of benefits – not the least of which is that it allows flexibility and customization to do what's right for your organization's specific needs. Below are four reasons equipment leasing is a good idea and should be a viable option for your business:
1. Minimal Upfront Capital Outlay
Companies big and small are looking for ways to streamline the budgeting process and forecast expenses. When a major piece of equipment shows up as a line item, it can disrupt an entire organization’s business strategy and limit growth potential depending on the equipment financing solution they choose. This is a major reason companies choose to lease business equipment. Unlike a long-term loan or outright purchase, a lease agreement typically requires little to no downpayment to get started.
Leasing allows your business to utilize its cash or credit line to meet other business needs and reserve cash flow to address unexpected liabilities or major initiatives that have the highest potential for ROI. Whereas purchasing equipment can require a major outlay of capital up front, leasing allows for payments to be stretched out over a longer period of time.
2. Protection Against Outdated Equipment
That new smartphone in your pocket with all its added features or the influx of digital assistants to the market should indicate just how quickly things can change...and how quickly other technologies can become obsolete. Consider the technology innovations that have come and gone in the last few years alone. Likewise, business equipment obsolescence is a real concern for organizations that want to avoid unanticipated replacement costs and stay one step ahead of their competitors.
The pace of innovation in your business environment is rapid and constant. Leasing rather than owning equipment, which can become obsolete prior to the end of its expected life, allows your business to use it during the lease term and then return it if so desired. That’s because leases can typically be modified during the lease term so you can upgrade your equipment to take advantage of newer technology or, if you still like your equipment, you can make arrangements to extend the lease. Some companies prefer to arrange a lease-to-own agreement which gives them the option of purchasing equipment outright at the end of the lease term.
As quickly as business environments and markets can shift, it’s good to have the flexibility of a leasing option to mitigate the risks of obsolescence and rapidly evolving technology.
Leases can be structured to meet the specific needs of your business. The length or term of your lease can be adjusted to help you reach a more desirable monthly payment amount that fits into your budget. Or, if you prefer quarterly payments rather than monthly installments, that can likely be arranged, too. Other terms of the lease can also be modified, including the commencement date and first payment date, as well as which day of the month you’d like payments to be due.
You’ll also want to consider your end-of-term stipulations and which options will be best suited for your business model and financial situation. Leasing provides a broad range of flexible options that are often lacking in standard loan agreements, especially when you choose to work with a localized leasing agent that is experienced in your industry, familiar with your local market and willing and able to structure lease agreements to meet your needs.
4. Fixed Payments
Perhaps nothing is more disruptive to business than fluctuating or unexpected expenses from one month to the next. Leasing offers the advantage of being able to more accurately forecast expenses and manage budgets and cash flow because the periodic lease payment is a fixed amount over the lease term. This constant payment amount provides your business with consistency for planning purposes.
The fixed payment amount also provides protection against interest rate increases. While inflation and interest rates have remained relatively low in recent years, there’s no guarantee that will remain the case in the future, and leasing can hedge against such potential increases in inflation.
For most businesses — whether a large manufacturer or service firm that needs major equipment, or a small office that just needs a good printer — leasing is often the most economical and sensible choice versus buying equipment. The next time your organization considers an investment in equipment, contact the Gordon Flesch Company’s team of experts to see whether leasing is the option that’s right for you.