Most businesses require some sort of equipment to run their business. Unfortunately, business equipment can be incredibly expensive, especially when you’re talking about oversized or intricate machinery.
Not only is the equipment expensive, but newer, more innovative models are always being released, which means what may be good for you today, may not be as efficient or profitable to you in the future.
Considering the high cost of equipment and the fact that it needs to be replaced from time to time, it might make more sense to lease it instead of buying it outright. Let’s take a deeper look into commercial equipment leasing and how it may help to relieve some pressure on your business’s bottom line.
Rather than buying expensive equipment and paying in full, commercial equipment leasing offers businesses a way to get their hands on the latest models without using up their working capital all at once. It’s a powerful financial tool that can help businesses successfully operate and expand their operations.
Rather than purchasing the equipment required, the equipment is leased from a leasing agent at a specific monthly interest rate for a certain number of months, similar to the way a car lease might work.
As mentioned, commercial leasing works a lot like a car lease. An equipment leasing agent will own or buy the equipment you need and then lease (rent) it to you. The lease will usually come with a fixed interest rate over a period of time. This ensures that the payments you make are the same until the end of the period.
Once you make your payments and reach the end of the term, you’ll have the option to either return or purchase the equipment (depending on the contract terms).
If you’ve decided that leasing your equipment is the way to go, consider exactly which type of lease to opt for:
An operating lease lets you use an asset for a certain amount of time without actually owning it. The lease period is typically not as long as the economic life of the equipment, and once the lease expires, the leasing agent can recoup any extra costs by selling the equipment.
Equipment that is leased with an operating lease is considered a rental expense, which can be advantageous because it won’t be listed as an asset or liability and can still qualify for tax incentives. Annual rates for operating leases can range anywhere from 3% to 30% depending on the leasing agent and your financial health, and the typical contract is anywhere from 12 to 36 months long.
Also referred to as a finance lease, a capital lease still involves the leasing agent owning the equipment, but the lease is considered an asset. As such, it can increase your business’ holdings and liabilities.
This can be advantageous for larger companies because they can claim interest expenses and depreciation tax credits. Businesses can also buy the equipment at the end of the lease if they choose to do so. That said, the rates for a capital lease are usually higher than those with an operating lease, and contracts tend to range from 24 to 72 months.
There are plenty of advantages that come with leasing your equipment instead of buying:
Along with the benefits of leasing your equipment, there are also be some disadvantages that you may want to consider:
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There are various sources for these types of leases, including the following:
A leasing company works specifically with the manufacturer of the equipment and facilitates the lease.
These types of brokers work on your behalf to find a leasing company that will provide you with the best rates and fees. The lease broker essentially serves as an intermediary between you and the lessors they deal with and will find offers, submit your requests for financing, and deal with the paperwork. Lease brokers are certainly helpful, but they charge for their services anywhere between 2% to 4% of the cost of the equipment. However, they are often able to get better prices than you might get if you didn’t work with a broker.
These lessors can include banks, lease specialists, and specialized financial companies that offer equipment leases to businesses. They usually specialize in remarketing equipment that allows them to group equipment from various manufacturers and offer better rates.
If you take out a commercial equipment lease instead of buying the equipment, you’ll have certain obligations that you will need to adhere to. Aside from making your monthly payments on time, other responsibilities include:
To lease your business’ equipment, there are certain steps you need to take:
Leasing is generally preferred if the equipment you need is one that can quickly become obsolete or outdated. Similarly, if you expect a lot of wear and tear, and expect to update your equipment regularly, leasing can be the better option.
Financing your equipment can sometimes be a better option if the equipment has a long useful life or if you plan on keeping the equipment as an asset. Moreover, financing is generally cheaper than leasing and then buying the equipment.
If your business is in need of equipment but your capital isn’t sizable enough to cover those huge costs, a commercial equipment lease might prove to be helpful. Apply with Loans Canada and we’ll help put you in touch with a reputable leasing agent from our vast network of lenders today.
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