Leasing Vs Purchasing - The Benefits of Business Lease Agreements

Leasing vs. Purchasing Equipment

Have you ever wondered why small businesses opt to lease equipment than buy? The reasons for renting are as varied as business owners and the companies themselves. You can gain substantial advantages by renting, but you ought to carefully weigh all options before signing business lease agreements.

Your business generates income by using equipment. It doesn't matter whether or not you actually own the property or rent it; the idea is to have the equipment at your disposal, at any time, to make use of. Having the right equipment lets you satisfy customer expectations that you will have the product when they require it. Happy customers mean that they will come back and you keep making funds.

A lease is another financing option obtainable to your business.

Lots of start-up and young businesses find themselves short on funds. Being cash-poor restricts your ability to buy equipment. Renting avoids a large preliminary expenditure of funds. Your young business escapes compliance with restrictive loan requirements such as maintaining a specific bottom line or meeting financial ratios such as debt to equity.

When deciding between leasing vs. purchasing, lots of young businesses find renting a better option when

The equipment they use is quickly outdated
  They need to maintain money flow & cannot spend the money up front
  Their financial statements make it hard to receive a bank loan
  Lenders cannot meet the business' term & rate of interest requirements
  They need to meet short term capacity needs such as meeting a large order

Leasing Benefits

Both capital & operating agreements reduce your taxes. The difference lies in which of your financial statements are changed by the lease agreement. Capital leases affect both your balance sheet & income statement; operating leases involve your income statement only.

As a business owner, there's types of agreements to think about: capital leases & operating leases. Most people use possession to decide in the event that they have a capital lease. In case you own the equipment at the finish of the lease term, you have a capital lease. All other rental agreements are operating leases.

Little businesses find leasing benefits in rental agreements that

You must look at the effects of business lease agreements on your financial statements to pick in case you need a capital lease or an operating lease.

  Provide 100% financing
  Secure terms that are more flexible than loans
  Contain related installation, supplies, maintenance, & training costs
  Make budgeting & forecasting simpler with fixed payments
  Safeguard against inflation & cost increases
  Increase adaptability to short-term capacity needs
  Keep debt lines free so you can grow
  Reduce taxes
  Protect from quick expertise changes & disposal of outdated equipment
  Improve money flow

S L Fowles has over 15 years financial experience. They has helped organizations improve margins, increase efficiency, & streamline processes. Fowles has led the development & implementation of new services.

Each business has its own criteria when deciding between leasing vs. purchasing equipment. Business leasing agreements must be thoroughly evaluated, using cautious consideration to the leasing benefits against the long-term effects of rental agreements on your business' financial statements.