Equipment Leasing: The Budget Friendly Option

Equipment leasing argument for small business
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Although your business may be growing at a rapid pace, it doesn’t mean that you are rolling in the profits. However, you still need to focus on creating a workspace for your new employees. While the thought of purchasing office furniture, work stations, computer equipment and more seems daunting, you have another option: equipment leasing. Consider the top three reasons why equipment leasing is in your budget’s best interest.

Grow Without the Budget

Without a significant budget, you may think necessary equipment is far out of your reach. However, leasing provides you with flexible payment options and increased cash flow as your business continues to expand. LeasingIdeas.com suggests, “Your equipment needs will grow and change along with your business. With equipment leasing, you have the option to take on additional equipment or upgrade the equipment you currently possess.” Don’t hold your business back because your budget isn’t on par with your needs.

  • Stay budget friendly: Only lease what you need, and take on more as needed. While it is a financially friendly option, you still want to keep costs low.

Keep Good Credit

You currently have good credit, but often times, starting a business can have detrimental effects on it. Without taking out a loan on expensive items, you can be sure your line of credit stays open for other important purchases for the business, yourself or your family. On the other hand, if your credit is less than stellar, this is a smart way to get what you need without the hassle of an extensive application process with a number of lenders.

  • Stay budget friendly: Choose a leasing company that keeps standard pricing, regardless of credit score. Making on time payments may in turn help your overall credit score, which will be beneficial for purchases in the long run.

Earn Tax Deductions

As a business on a budget, you want to cut costs wherever possible. Equipment leasing is not only flexible with payments and overall cost, but you may also be able to deduct the lease payments from your business taxes. The government sees leasing as a business or operational expense, decreasing your over-all total payment.

  • Stay budget friendly: There are a number of reasons that the IRS would not consider your lease deductible; these reasons include: eventual ownership after a certain number of payments, if payments are made toward interest, or, if after a trial period, you pay it all off in a large sum as opposed to your regular payments – be sure to know the details before making any decision so you can be sure to take advantage of the tax write-off.

Regardless of funds, your growing business has needs that are critical to operation, productivity and maintenance. Thus, if you feel making the necessary purchases is out of the realm of possibility, it’s time to explore other options. Leasing equipment is a great way to grow your business without stretching your already tight budget. Be sure to know the details of your lease, and opt for a flexible payment plan that can be modified down the road if need be.

Bio: Jessica Sanders is an avid small business writer touching on topics that range from social media to copiers and office cubicles. She is a professional blogger and web content writer for ResourceNation.com.


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3 Comments

  1. Grow Without the Budget – It is important to remember that companies should view leasing as a source of debt financing. This is true even if you opt to finance under an operating lease. Any financial analyst worth their salt will capitalize operating leases when conducting financial statement analysis. This is not to say that lease financing does not have its place but rather the decision to purchase equipment should not be based on whether a company has or does not have a budget for said equipment, but rather whether the NPV of the proposed equipment acquisition is both positive and the highest of other mutually exclusive opportunities. The source of the financing is a secondary decision. This section of the article seems to imply that it is the primary.

    Earn Tax Deductions. This section of the article seems to imply that only leasing (operating leases in this example) provide valuable tax deductions. The other side of the coin is that traditional bank loans also provide valuable tax deductions. The company will take both interest deduction on the debt and depreciation expense deduction. Given some of the historical tax benefits such as accelerated depreciation and the section 179 increases (in prior years) it is often a good idea to weigh both options.

    Also remember that tax deductions are only good if you have income to shelter. Furthermore, and this point often gets lost with people, unless you keep up with sufficient capital expenditures, you will eventually pay higher taxes later. That is to say for most companies who have intermittent capex requirements, you should view the tax savings as a medium term loan from the IRS.

    All this said, I would agree that lease financing is an important source of debt capital but in my opinion, for the average small to mid size company, the best use of lease financing is vendor lease financing. This is particularity true for companies with marginal credit or where high capital requirements result in very high leverage. And while this is true for the lessee, the vendor should realize that there is no free lunch and make sure they understand all the costs and benefits they realize from a vendor financing program.

  2. Doug, I definitely agree with everything you said – however, I think to each it’s own. For some businesses, this is a simpler, and easier process that gets them a similar outcome. I appreciate your input though, as I’m sure the readers do as well. Thank you!

  3. I agree Jessica with you comment. Credit cards are easy and simple financing alternatives too but that does not mean they are the best alternative for a company to secure debt financing. My point, is that leasing is often an excellent source of debt financing but, in my opinion, Vendor lease financing is probably where lease financing is most beneficial to the average small to mid size business.

    The vendor on the other hand should carefully consider the use of vendor financing. I could write a book on the benefits and the pitfalls a vendor may realize when providing vendor financing. The accounting issues alone, especially when UNL or Loss Pool agreements exist, could be its own volume.

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