CARTOONS BY CHRIS BRITT

to shop around for rates to ensure you are getting the best deal. The process will include
a background check of your credit and business operations. Once your credit is approved,
the process moves very quickly and you can have lease approval within minutes. Every
type of equipment and lease will be different so make sure to look at prepayment
penalties, rights and restrictions on the item and other major terms.
ADVANTAGES
Less cost upfront. Since you are not purchasing the equipment, you are able to save your
available capital for other areas of the business while getting full use of the equipment,
machinery or other leased item.
Tax deductible. Uncle Sam allows for all of your lease payments to be deducted as
business expenses on your tax return. This can save you thousands over time.
Flexible. Since you are not purchasing the equipment, leases are usually easier to get and
the terms can be more flexible. This is perfect if you have less than stellar credit.
Easier to upgrade equipment. If you are in an industry where equipment needs to be
upgraded frequently, leasing can help you avoid the high cost of obsolescence.
DISADVANTAGES
Higher overall cost. It will be more expensive over the course of time than an outright
purchase. Paying cash is usually the less expensive option when all is said and done if the
equipment isn’t going to be outdated soon.
No ownership. You are merely paying rent on the equipment and never building equity.
You can’t sell it or borrow against the equity if it was needed.
Lease contract. You are bound to the terms of the lease contract and the payments are
still owed whether you use the equipment or not. You can technically terminate but there
is usually a large prepayment penalty.
LEASING EXAMPLE
Stephanie owns a small excavation company and just landed a large client with
multiple jobs over the next couple years. She doesn’t own the equipment necessary to
complete the work. She will need $250,000 to purchase the equipment. She goes to
the bank for a loan but is denied since the piece of equipment isn’t something she has
historically required in her business. She needs the cash on hand for operating expenses
until these projects get billed. She talks to the manufacturer and works out a lease
arrangement. She does not have to make a down payment and gets the equipment in
time to start on the first project for the client.
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