Businesses in every industry, especially sanitation, require equipment to function adequately and meet customer needs. It can be costly to buy equipment outright, especially when new models and technology are released nearly every year. Equipment leasing can often be a cost-effective solution for business owners and customers. This way you have funds that can be used elsewhere and have access to the best equipment each year.
How Equipment Leasing Works
Leasing a piece of equipment essentially means renting it, similarly to the way you would rent an outdoor space for an event or even an apartment. However, unlike renting, leasing a piece of equipment can require no money down, or collateral. Instead, you’re only held responsible for making flat monthly payments for the duration of your lease agreement. Once the initial agreement has come to an end, you can choose to renew, terminate, or purchase the equipment at a fair market value.
Benefits of Leasing
While it’s common for equipment leasing to be more costly for business owners when compared to purchasing the necessary equipment outright, many benefits come with this financing method that makes it worthwhile.
Lower Upfront Costs
Deciding to lease a portable restroom, vacuum truck, other necessary equipment for your business allows you to rent these items when you don’t have the funds available to purchase outright. Business owners won’t be required to make any upfront payments, and the monthly rates are usually lower than those you would see attached to a line of credit or business loan. Equipment leasing allows you to spread out the cost of your equipment and enables you to spend less on the item than you would have if purchasing to own.
Quick Equipment Upgrades
For your business to function at its best, equipment with the latest advancements and technology is necessary. Or, sometimes you just need to update and fill your inventory. Rather than investing in replacing equipment every few years, equipment leasing makes this much more manageable. At the conclusion of your lease agreement, you’ll have the option to renew, terminate, or purchase the equipment at a fair market value. Keep in mind; you’re not obligated to make a purchase at the end of your lease. Instead, you can return an obsolete piece of equipment and open a lease on something newer. Depending on the company you’re leasing from, you might even have the opportunity to trade out equipment before your contract ends.
Equipment leasing is also a cost-effective approach to equipment upgrades because you won’t have to worry about trying to sell an older product when you’re ready to transition to a newer product.
At times, you may only need a vacuum truck or restroom trailer for a specific deadline on a job. Maybe you just know a new model is being released soon. Equipment leasing is a perfect solution for both of these scenarios as you won’t be required to keep the equipment for the long-term, and you’ll have the opportunity to transition equipment as needed based on specific needs and business strategies. Businesses evolve over time, and you might not need the same equipment you required three months ago. Equipment leasing helps you uphold that flexibility and offers cost-savings in the big picture.
Equipment leasing often offers the same tax incentives as equipment financing, primarily if your lease is structured correctly. It’s important business owners look into eligibility for deductions of lease payments. Remember, you wouldn’t otherwise have access to working capital if you chose to purchase your equipment outright. Regardless of your situation, it’s encouraged to discuss options with your tax advisor to not miss out on essential benefits and savings.
Conserve Your Cash Flow
Most businesses have working capital to contribute to day-to-day business expenses, expansion, and sometimes unexpected expenses. These funds must stay available, especially if you’re already tight on cash. Equipment leasing allows for easy budgeting each month as you are already aware of the required expense. Purchasing equipment outright can diminish funding for future company growth, inventory, and more for a specific time frame.
Important Details to Consider
As with any situation, there are pros and cons to equipment leasing. While equipment leasing is a beneficial and cost-effective move for many business owners, it’s essential to consider potential obstacles that may surface when making your decision.
- Leased Equipment Isn’t Owned: Usually, owning equipment in full comes with its own benefits such as tax savings, but luckily some lenders will still provide tax benefits in one way or another. Leased equipment won’t be a valued asset in your books, which is often beneficial. However, this can also be viewed as a liability to other lenders and potential investors.
- Paying Interest: Leasing equipment isn’t comparable to a loan; however, there is still a likely chance that you’ll be paying interest. Average interest rates for equipment leasing vary depending on your unique situation. Still, it’s a detail to investigate as it may not be as disruptive to your cash flow as purchasing equipment outright.
- Limited Accessibility: If you’re a new business owner, it may be challenging to obtain a lease for equipment rental even if you have a good credit score and history. Lenders may require you to pay more upfront or provide collateral since you’re not fully established at this point in time.
Offer Top-Quality With Equipment Leasing
Whether you’re a business owner or a customer, becoming familiar with the pros and cons of equipment leasing can be extremely beneficial. Equipment leasing provides numerous benefits, from lower upfront costs and access to speedy equipment upgrades to cash flow conservation, product flexibility, and tax benefits. Technology and improvements will continue to be made on equipment, so instead of buying an item outright next time, consider leasing the item instead. This will ensure you have access to the newest of the new, so your unique needs are always met.