Are you looking for new equipment for your startup? If yes, you might consider going for business equipment financing.
When it comes to business equipment financing, the two most commonly available options are buying and leasing. And if you are confused about which option to choose, leasing is suggested for its unlimited and long-lasting benefits.
The option has become increasingly popular among businesses, mainly because companies handle their finances strategically in today’s competitive landscape.
As you may know, leasing equipment is about using the asset for a fixed period without the burden of ownership; it allows companies to experience various advantages, let alone the strategic value associated with it.
Moreover, buying all the needed equipment can be an uphill task, especially if you have just started out and are exploring your options to finance your business. Thus, if you are wondering how leasing your equipment can benefit your business in the short and long term, read on!
In this article, we will uncover the five great advantages of leasing equipment and how you can benefit from it.
So, without further ado, let’s get started.
- Manage Cash Flow
Nothing is more critical to a business’s well-being and health than proper cash flow management. Therefore, leasing equipment without the hassle of making a large down payment helps you save your working capital or bank lines. The saved-up capital can be used to drive new revenue streams, cover unexpected losses or enjoy business expansion.
However, improving your end-of-term management is the only way to ensure proper cash flow. This can be done by incorporating lease administration software. This software helps you save an additional 10% to 12% of the amount as you return assets on time and refresh equipment with better and newer performing equipment, increasing productivity and revenue.
Moreover, your lease payments are spread over several years, which helps you evade the equipment’s upfront purchasing cost. When your lease turns into a fixed monthly line item, it helps you adequately maintain smooth cash flow and budget for the future.
- Upgrade Obsolete Equipment
With constant new demands in the market, it is difficult for business owners to upgrade their equipment or outdated machines with strained capital regularly.
In this case, leasing equipment helps your business to upgrade outmoded equipment without incurring purchasing cost time and again. Moreover, you can test new equipment in the market without owning them.
Leasing is a smart and effective hedge against technology obsolescence and reduces financial risks. It helps you stay competitive by upgrading your equipment consistently without breaking the bank. In short, depending on your business type, choosing the option of leasing equipment helps you remain on top of the latest technological advancement.
Especially if you wish to keep the equipment for the short term, you will find leasing a way better alternative as you don’t need to resell it by the time you no more need it. Plus, you get the option to govern your lease’s term, so if you deal with technology that rapidly changes, you can avail of a short lease and be at the top in your industry.
- Tax Benefits
As a business owner, you must seek ways to gain tax benefits. And that is exactly why you need to go for lease financing. First, it offers businesses potential tax benefits. Moreover, it helps you preserve working capital that you might not have if you had bought the equipment upfront. It also allows you to get a full lease payment deduction against the current.
In other words, you can expense out 100% of the payment if your lease is structured correctly. Thus, if you are considering the conventional loan option, go for lease financing to get an extra tax advantage.
However, you must always check with your tax advisor to determine the possibilities of tax benefits your business rightfully deserves. This will also enable you to reduce taxable income in your books. After all, any equipment not listed as a liability or asset on your balance statement helps avoid debt and simplify accounting.
- Protect Credit and Save Money
When you have an operating lease, it lets you keep your company’s credit line open. This means that you can quickly receive funding if you plan to hire more staff, expand your business or fulfill other operational needs. Moreover, you can also use this option to avoid spending more resources and time finding someone to extend credit to purchase equipment.
Similarly, leasing requires a minimum deposit, so you can avoid financing incurring a sizeable down payment. Plus, the low monthly payments are appropriately structured and designed around your budget and needs, which makes it more manageable to account for and budget than purchasing equipment directly.
In other words, you can pay more attention to things tugging at your available capital. You can spread out the available money in a better and broader way and accomplish much more of what is required of your capital.
- Remain Flexible with Fixed Payments
Your lease payments remain fixed for the lease term and are not affected by market conditions. This helps protect the business against higher payments, thanks to inflation. In addition, since the payments remain the same, it makes planning easy and allows you to budget smartly by forecasting future expenses.
Moreover, you can decide what to do with the equipment at the end of the initial term. For instance, you may renew the lease at fair market value, purchase the equipment, extend it at current market value, or simply return it. In other words, you get complete control over your asset and can use it in whatever way benefits your entity and help you stay productive.
As your business grows, so do your needs. Thus, instead of purchasing equipment that is often a permanent and expensive decision, go with leasing equipment and remain flexible. It is amongst the best options for your business. Especially if you are a small business or plan to retain more capital at hand, gain tax benefits, structure your cash flow, earn more revenue and expand your business, leasing equipment is your best choice.
While leasing equipment over buying has many advantages, most importantly, it helps you stay competitive by meeting unique business needs. Last but not least, it offers predictability, flexibility, and lower risk and is one of the easiest and smartest ways of financing fixed assets for today’s businesses.
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