From imaging equipment to industrial forklifts, many commercial enterprises require expensive and specialized tools to operate efficiently, commercial equipment leasing offers a versatile and financially savvy way for businesses to access this essential equipment without the hefty upfront costs. However, not all leasing options are created equal. Making an informed decision about whether to lease or buy business equipment depends heavily on understanding the different kinds of leases available and how they fit with your company’s financial goals and operational needs.
The main types of equipment leases include capital leases and operating leases. Each has its own set of advantages based on your goals, financial situation and plans for the equipment. For example, if you want to eventually own the equipment you’re leasing, a purchase-option lease—also known as a $1 buyout lease—gives you that opportunity at the end of the lease term, which could be for as little as $1 or a predetermined portion of the equipment cost. This type of lease can be particularly useful for equipment that is subject to technology obsolescence and is therefore difficult to sell at the end of its life cycle.
Another type of lease is a 10 percent purchase-option lease, which offers you the option to purchase the equipment for 10 percent of its original cost at the end of your leasing period. This is typically a less expensive option than purchasing the equipment outright because it allows you to spread the initial upfront costs over a longer period of time. However, since the leasing company is taking more credit risk and technology obsolescence risk than a lender making a loan to a fiscally strong business, these leases usually have higher built-in equipment costs than loans.
On the other hand, an operating lease offers you more flexibility in terms of upgrading the equipment you are leasing, especially if it is high-tech or subject to rapid technological obsolescence. You can upgrade the equipment within your lease term without incurring a penalty, and you can often do so on an ongoing basis throughout the life of the lease term, as long as you are working with a reputable leasing company that offers this option. This can be a great benefit for businesses such as graphic design agencies that must always have the latest software and computers to stay current with client demands and compete effectively in their industry.
In addition to the equipment-specific terms, there are also several different ways you can structure your lease agreement—and it is important to understand these terms before choosing a leasing option. For instance, some leases require retainable deposits and other upfront fees, which can make the total monthly payments on a lease more expensive than it needs to be. Ideally, these expenses can be minimized or eliminated by working with a leasing provider that does not require these fees and negotiating terms that allow for deposit refunds under predictable circumstances.
Once you understand the different options available, you’re ready to start the equipment leasing process. It may be a long process, but it is one that will be worth the effort when you finally have the right equipment to grow your business successfully.