| To be a success in business today, you have to be able to get the equipment you need to keep up with orders and your customers, as quickly as possible. Trying to negotiate financing with a loan, especially in these times, can be a long, drawn out process and it is not always successful. Luckily, business owners today have the option of economically leasing equipment through either a capital lease or an operating lease, making equipment financing a breeze.
Capital Lease vs. Operating Leasing
If you wish to own the equipment you need, financing its purchase through a capital lease does have its advantages. You simply negotiate its lease for a defined length of time, at the end of which you pay a small additional payment to purchase it outright. However, in terms of business financing, this is not always a good option, especially for small businesses. Once you own the equipment, it becomes an asset, a capital asset, which must be claimed on your end of the year taxes. It also becomes devalued through depreciation, which will also have to be accounted for later on.
Through an operating lease, on the other hand, you are not truly purchasing the equipment in question. Instead, you are simply leasing it for the length of time you will need it and when the lease is over, the equipment returns to the leasing agent. Financially, this will save you on maintenance costs, which fall under the obligation of the leasing agent and frees up your operating budget so that you can concentrate on investing capital back into your business where it belongs.
Done in this fashion, it does not have to be claimed on your taxes at the end of the year either, and any depreciation devaluation on the equipment is dealt with by the actual owner of the equipment, the leasing agent.
Other Benefits Of Operation Leases
Operating leases have benefits that range far beyond the initial financial benefits of being free from depreciation and capital investments. Starting costs for this type of lease agreement are far less than they would be if you have acquired loan financing for the purchase price, instead. Low down payments, plus low rental fees monthly, can easily be worked into your yearly operating budget without sacrificing too much of your profit margin to do so.
It also allows for more flexibility in terms of use. When you purchase any piece of equipment, you own it, even if you only needed it for a short amount of time. Your only option then would be to resell it at a loss and with the economy the way it is, that is never a guaranteed way to make any of your money back. By leasing it for only the time you need it, the only money you are out is the lease payments. This benefit also applies during an operating lease if there is a risk for it to become technologically outdated at any point. (more…)