Business Equipment Leasing
Building a business from scratch is expensive. If your start-up is particularly capital-intensive from the get-go, or could require frequent equipment upgrades down the road, you may want to consider leasing business equipment.
What Equipment You Should Lease: If you are starting your business on a tight budget, look at big-ticket items as potential leasing opportunities. This would include office necessities such as computers and copy machines, as well as any expensive equipment that is needed to make your business run, like high-end printers or other imaging products.
Leasing allows you to avoid these heavy upfront costs and obtain more equipment sooner -- and you may even be able to structure your lease to defer payment until your business is running smoothly.
Where to Find Equipment for Lease: Some of the same companies that sell office equipment will lease it too. For example, Hewlett-Packard offers details about its leasing program on its financing Web site. You also can search out equipment for lease through brokerages and leasing providers. BuyerZone.com offers a free online quote. Some companies may require a minimum lease, such as $5,000 worth of equipment, while others will only look at new businesses with a certain credit score.
Types of Leases: Most equipment leases are fair market value leases, or true leases, where the lessee has the option to buy the equipment at market price once the lease expires. New businesses may want to go for finance leases, where you pay more over the life of the lease, but then get to buy the equipment at the end for a low, agreed-upon price, sometimes just $1.
Terms of the Lease: If leasing is new territory for you, easylease.com offers a glossary of common leasing terms. As with any agreement you enter into for your new business, make sure the terms of the lease are reasonable and affordable. You can go for a two-year lease, which is particularly useful when you're buying equipment, such as computers, whose price fluctuates with changes in technology and might require more frequent upgrades than other items. Also, make sure you familiarize yourself with the rules of repair – you may be required to pay for some repairs while the leasing company will pay for others – and find out what cancellation provisions and penalties exist in the contract you’re about to enter into.
Duration of the Lease: The minimum and maximum length of a lease is up to the lessor, but you should figure out what length would be appropriate for your business before signing a lease. A short-term lease could end up being too short, since the payments might exceed the benefits you derive from the equipment. It will likely also have higher monthly payments, since you're paying a premium for the flexibility of the shorter lease. A longer lease can be too long if the obligation prevents you from upgrading to newer equipment, or at least makes it cost-prohibitive. Of course the monthly payments will be cheaper.
Tax Ramifications: There are some tax advantages to leasing office equipment, but they vary depending on the type of equipment and the type of lease. During the terms of a fair market value lease, you can claim the lease payments as an expense for tax purposes. During a finance lease, you are treated as the owner of the equipment in the eyes of the IRS, and can write off depreciation and finance charges. Check with a tax professional before entering into an equipment lease to determine what tax benefits your lease would qualify for. The IRS has some additional information on the tax ramifications of leasing.
Alternatives: Don't completely rule out buying certain items. Between the financing terms and tax benefits, the bottom line may turn out to be better than leasing. This is especially the case with equipment you plan to use for a long period of time, where you can write off depreciation over the life of the equipment. Also, look into used equipment on the small-business section of eBay. Deluxe PinPoint offers an online leasing calculator to help you run the numbers on leasing vs. buying.
What Equipment You Should Lease: If you are starting your business on a tight budget, look at big-ticket items as potential leasing opportunities. This would include office necessities such as computers and copy machines, as well as any expensive equipment that is needed to make your business run, like high-end printers or other imaging products.
Leasing allows you to avoid these heavy upfront costs and obtain more equipment sooner -- and you may even be able to structure your lease to defer payment until your business is running smoothly.
Where to Find Equipment for Lease: Some of the same companies that sell office equipment will lease it too. For example, Hewlett-Packard offers details about its leasing program on its financing Web site. You also can search out equipment for lease through brokerages and leasing providers. BuyerZone.com offers a free online quote. Some companies may require a minimum lease, such as $5,000 worth of equipment, while others will only look at new businesses with a certain credit score.
Types of Leases: Most equipment leases are fair market value leases, or true leases, where the lessee has the option to buy the equipment at market price once the lease expires. New businesses may want to go for finance leases, where you pay more over the life of the lease, but then get to buy the equipment at the end for a low, agreed-upon price, sometimes just $1.
Terms of the Lease: If leasing is new territory for you, easylease.com offers a glossary of common leasing terms. As with any agreement you enter into for your new business, make sure the terms of the lease are reasonable and affordable. You can go for a two-year lease, which is particularly useful when you're buying equipment, such as computers, whose price fluctuates with changes in technology and might require more frequent upgrades than other items. Also, make sure you familiarize yourself with the rules of repair – you may be required to pay for some repairs while the leasing company will pay for others – and find out what cancellation provisions and penalties exist in the contract you’re about to enter into.
Duration of the Lease: The minimum and maximum length of a lease is up to the lessor, but you should figure out what length would be appropriate for your business before signing a lease. A short-term lease could end up being too short, since the payments might exceed the benefits you derive from the equipment. It will likely also have higher monthly payments, since you're paying a premium for the flexibility of the shorter lease. A longer lease can be too long if the obligation prevents you from upgrading to newer equipment, or at least makes it cost-prohibitive. Of course the monthly payments will be cheaper.
Tax Ramifications: There are some tax advantages to leasing office equipment, but they vary depending on the type of equipment and the type of lease. During the terms of a fair market value lease, you can claim the lease payments as an expense for tax purposes. During a finance lease, you are treated as the owner of the equipment in the eyes of the IRS, and can write off depreciation and finance charges. Check with a tax professional before entering into an equipment lease to determine what tax benefits your lease would qualify for. The IRS has some additional information on the tax ramifications of leasing.
Alternatives: Don't completely rule out buying certain items. Between the financing terms and tax benefits, the bottom line may turn out to be better than leasing. This is especially the case with equipment you plan to use for a long period of time, where you can write off depreciation over the life of the equipment. Also, look into used equipment on the small-business section of eBay. Deluxe PinPoint offers an online leasing calculator to help you run the numbers on leasing vs. buying.