Benefits of Leasing
When it comes to acquiring equipment for your business there are several ways to purchase. You could use cash and purchase outright all up front, you could get a loan from your bank and pay monthly installments to the bank on the loan, you can rent on a monthly basis direct from the vendor if available, or you can lease the equipment.
Decision makers often differ in which method they will use to acquire the equipment but it is in our opinion that a commercial lease is the best way to go. The following are examples of each method and what the positive and negative impacts are each.
Using cash to acquire equipment is, for some, a budgetary decision based on not accumulating any debt. For those that feel more comfortable in using their cash flows to ensure they do not carry a balance then cash would be a reasonable way to go.
Unfortunately there are far better ways to utilize cash than through equipment acquisition.
Cash should be invested in appreciating assets rather than depreciating ones, or into investments with decent ROI’s. Also, when using cash to acquire equipment you risk not having the proper cash flow available when needed (payroll, bill payments, etc).
Taking a loan from your bank is better for your cash flow than simply using cash for equipment acquisition. However, your bank can be your best friend in business when you are in need of financial services outside of equipment acquisition.
For example, if you experience a slow quarter and your cash flows are depleted you can utilize your bank line for a loan and use that cash for the necessary purposes. If you have already utilized your bank for a loan to purchase equipment you may have reached your limit with the bank in terms of giving you more money (exposure) when it really matter.
Renting can be great for short term needs. When acquiring equipment for anything beyond a few months to a year a rental can become extremely costly with no backend value. Also, with renting there is generally no end of term purchase option or upgrade ability.
Leasing allows you to acquire equipment with ease and conserve your cash flows. It also can be done through many institutions that are not “banks” which allows you to keep your exposure with your bank for more important things such as cash necessity (through a loan). Commercial leasing companies do not lend “cash” which makes it more important to keep your bank lines available and not tie them up with equipment acquisition.
Here are some major benefits to leasing your equipment
- Ease of acquisition – Leasing allows you to get your equipment fast with little to no money up front.
- Increased buying power – Leasing allows you to leverage your buying power with periodic payments rather than one upfront purchase. This means you can add more accessories or more units to your order which in turn will do more for your business.
- Custom payment streams – When you lease your equipment you can tailor the payment schedule to suit your company’s needs. For example, if you are running an ice cream store you probably make your most revenue in the warmer months. You can structure the payment schedule to have small payments in the winter months and the larger ones in the warmer months when the revenue is there.
- Potential tax benefits – In some circumstances you can expense lease payments rather than depreciating the capital cost of the equipment. Make sure you consult with your accountant or tax advisor to ensure you take full advantage of any tax benefits associated with your equipment lease.
Director Business Development
Toronto Division Copiers
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