Like many individuals, you may dream of working for yourself. You may have even done some research on the costs and startup process. One cost that can seem overwhelming is that of equipment. No matter what business you are in, from office work to manufacturing to medical, you need machinery. However, you do have an alternative to purchasing your equipment outright. These are the disadvantages and advantages of equipment leasing.
You should understand the disadvantages of leasing your equipment. First, unless you choose to purchase the equipment after your lease ends, it will never be yours. Therefore, you may be limited in the updates or changes you can make to the machine. You also need to maintain and return your equipment in the condition discussed in your lease. You could even be responsible for paying for repairs.
You may have to pay interest. You may also have difficulty finding a company that will lease equipment to you if your credit is poor or if you haven’t been in business for a specific number of years. Check for longevity requirements with each company before applying.
Despite these disadvantages, equipment leasing also has some major advantages. First, it often costs less to lease your equipment. You are unlikely to have a large down payment, which is typically required by financing companies. In addition, you don’t have the same interest structure. You also have the option of negotiating your payment dates, from weekly or monthly periods to quarterly or annual payments.
At the end of your lease, you can either choose to purchase the equipment you have been using, or you can upgrade your machinery and sign a new lease. This is a significant benefit due to the speed of today’s technological advancements. Most companies have a minimum lease term, but you have the option of upgrading your machinery every two or three years. In addition, you don’t have to sell your old equipment. It just goes back to your lessor for someone else to lease.
In addition, you may only need a piece of equipment temporarily. For example, you may be manufacturing something today that you don’t plan to manufacture in five years, or you may be creating a new process that will eliminate one or more of the machines you currently use. With a lease, you can just return the equipment when it isn’t needed any longer.
Only you know if equipment leasing is right for your business. Consider all the pros and cons before making this decision.