Is Leasing Right for My Business?
FACT: 8 out of 10 businesses use leasing to acquire their office technology equipment for 2 key reasons: affordability and technological obsolescence.
Are you considering leasing your office technology equipment but are unsure if this is your best option? We’ve provided a list of important questions to ask before making your decision, and a list of reasons why leasing may be your best option.
10 Benefits of Leasing Office Equipment
- Low Monthly Cost
Pay as you use the equipment, not all at once.
- Tax Benefits
Deduct monthly payments as Operating expense.
- Upgrades & Add-Ons
Ability to make changes if business needs change.
- 100% Cost Coverage
Cover all incidental costs.
- Conservation of Capitol
Spend cash on other items such as advertising, inventory or personnel.
- Supplies & Maintenance
Makes budgeting equipment easier over the term when everything is bundled.
- Fixed Payments
Payments are locked in to avoid risk of inflation.
- Preserves Credit
Doesn’t tie up lines of credit.
- Flexible Payments
Structure payment plans that work for cash flow needs.
- Flexible Lease End Options
Options are available-upgrade, return, or purchase.
Key Questions to Ask
What type of lease are you being asked to sign–a capital lease or an operating lease?
A capital lease is similar to a loan. With this type of lease, the equipment is considered an asset on your balance sheet, and you get the benefits–such as tax depreciation–and risks–including obsolescence–of ownership. Capital leases are often for as long as five years.
What is an operating lease?
With an operating lease, the leasing company retains ownership, and for tax purposes, considers the equipment a monthly operating expense rather than a depreciating asset. Operating leases are generally more common among small businesses because they don’t tie up funds and are usually short-term–three years or less.
Is there a buyout option?
You may have a choice between a fair-market value (FMV) option and a $1 buyout option. FMV means you can buy the equipment at the lease’s end for its fair-market value, which could be hundreds of dollars. In contrast, a $1 buyout option means the equipment is yours for $1 when the lease expires. And while that sounds like the best option, keep in mind that monthly payments on FMV leases are usually lower than $1 buyout leases. If you’re fairly certain you’ll want to upgrade to new technology when your lease expires, go with the FMV option.
How long is the lease?
Usually, leases for equipment run 24, 36 or 48 months. The longer your lease, the lower your monthly payments–but you’re also likely to pay more over time with a longer lease.
Does the equipment have to be insured?
Some leasing companies require you to insure the leased equipment. If you don’t, fees may be added to your monthly payment to cover insurance.
Can I add to the lease?
Most leasing companies don’t mind if you add equipment to an existing lease. Your lease payment will be recalculated accordingly and lease terms don’t usually change.
Can I terminate the lease early?
What if you no longer need the equipment you’re leasing or you want to upgrade to newer technology sooner than you expected? Find out in advance if you can pay off your lease early, and if there are any penalties for doing so.