Financing is a must for small businesses. The first years of a company are hard due to the lack of a continuous steam of cash steady enough to reduce the need for loans, lines of credit and other forms of financing. Leasing company equipment is an excellent solution and alternative to business loans and lines of credit. There are many benefits that leasing equipment provides over business loans and should be considered when comparing these alternatives. When it comes to business financing there are many issues to address: the amount of financing that you need in terms of percentage of the purchase price, the depreciation of the equipment you want to obtain, the additional costs in terms of taxes and last, but not means least, the cost associated with inflation (loss of value of money or prices increments). Percentage Of Financing Sometimes, when running a business you may need to obtain a particular equipment but at that time you may not have savings to cope with a down payment. Most business loans for purchasing equipment require you to put money down and finance only 80% of the purchase price or sometimes less. This can really be an obstacle for most businesses with limited cash flows. However, leasing provides 100% financing and all costs associated with the transaction can be included in the lease monthly payments. Moreover, there are some leasing companies that require no deposit at all. Most of them however will require you to make the first payment in advance and some may require up to three payments in advance which however does not even get close to the tenth part of the amount required for down payment on secured loans (20% of the purchase price). Depreciation Of The Equipment And Inflation Equipment sometimes depreciates fast, and if at the point where the leasing contract ends, the equipment is almost obsolete, you can have it replaced for a new one and the leasing contract renewed. You are not forced to retain the equipment and pay the remaining price. Moreover, if you had to save in order to purchase expensive equipment you would be racing against inflation. With leasing you can pay in small fixed installments a piece of equipment that would otherwise be harder to get due to the depreciation of currency. Taxes And Soft Costs There are soft costs that usually cannot be included in a business loan for purchasing equipment such as transportation and delivery, service and maintenance contracts, etc. Also, property related taxes are usually paid separately and cannot be included on the loan. But with leasing, all these soft costs can be added to the overall monthly payment thus simplifying the operation. Moreover, when it comes to taxes, leasing contracts are particularly attractive due to the deductions you are allowed to make. Since a leasing contract resembles a rent contract on many ways, the monthly payments on your equipment lease can be deducted wholly from taxes as operating expenses. Therefore leasing equipment can be really advantageous for small businesses as these tax deductions represent great savings when it comes to a small business budget.
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