The Pros and Cons of Leasing Equipment or Vehicles
Companies and employees can only do so much without equipment. Whether it be computers, heavy machinery, or even just a company car, a business needs equipment to get things done. However, outfitting your small business with expensive machines or electronics won’t be cheap, and as a new business, you could struggle to get outside funding, such as a line of credit. An alternative is to lease your equipment so that you don’t have to spend a large amount of capital or seek outside financing.
A small business lease is used to finance the purchase of equipment and vehicles, and generally, businesses can lease any vehicles or equipment that will be used to increase operating efficiency or to generate revenue. There are of course pros and cons to leasing equipment, and you should have a lawyer look over any lease agreements before you sign them.
Pros of a Small Business Lease
There are a few advantages if you decide to lease instead of purchase outright:
- Leasing helps you keep up with new technology, by allowing you to upgrade equipment and tools on a schedule.
- With a short-term lease, you have the opportunity to try the equipment out to see if it works for you. From there you could extend your lease, invest in the equipment, or try a different product.
- If service was included in the lease, you may be able to have maintenance done on your equipment for no extra cost, which could save you money over maintaining purchased equipment.
- If the leased equipment is vital to your business, you may be able to deduct the cost on your taxes. You may also find that there are certain tax advantages to owning your equipment, so be sure to consult with your accountant before deciding which option is best for your company.
At this point you may be thinking, why would I not lease my equipment? Well, there are a few cons to leasing rather buying.
Cons of a Small Business Lease
- As a startup or small business that has not yet established strong business credit, you might need to use your personal credit to secure the lease. It can be risky to intertwine your personal and business credit in this way, putting your personal assets in potential jeopardy.
- You may end up paying more in the long run to lease equipment instead of buying it. If you think you might use the equipment for an extended period of time, try to negotiate your contract such that your lease payments will go toward the eventual purchase cost of the equipment.
- Because leasing can tie you down to a piece of equipment for a certain amount of time, if something new and better comes along, you’ll likely have to wait until your lease is up to try it out.
How to Build Business Credit to Help Get a Lease
If you don’t want to use your personal credit to lease equipment or you were told that your business credit wasn’t strong enough, then you may want to start building up your Dun & Bradstreet business credit file. In addition to separating your business from your personal credit and assets, business credit may help you get a loan or line of credit, win more contract bids, manage risk and cash flow, and much more.
Business credit starts with a D&B D-U-N-S® Number, which is free – but can take up to 30 business days to receive, so apply for one now before you really need it. Once you have a D-U-N-S Number, your Live Business Identity will be created in the Dun & Bradstreet Data Cloud. Potential partners, lenders, and suppliers can access your business credit scores and ratings in your Live Business Identity to help assess the creditworthiness of your business. By building and monitoring your profile, you can help make sure the information in your Live Business Identity is correct and that Dun & Bradstreet has enough information about your company to provide scores and ratings for your business. Once you’ve established a strong business credit profile, the possibilities are endless.
Finding Funding to Lease or Buy Equipment
No matter whether you decide to lease or buy equipment, if you need funding for either option, you have a variety of choices:
- Seek a traditional loan from a bank, where your business credit will definitely come in handy
- Use an alternative lender who may have less strict criteria for a small business
- Opt for a line of credit
- Use a business credit card
- Try to crowdfund your expense
No matter what you choose, it will still be a good idea to build and monitor your business credit, because whoever loans you the money is going to want reassurance that you’ll pay them back.