12
Jan
2021

Pros and Cons of Leasing Equipment for Your Small Business

Depending on what industry you’re in, obtaining equipment can absorb a large portion of your expense budget. In fact, according to studies, on average a restaurant will spend at least $100,000 on kitchen equipment alone, and another $30,000 to $40,000 on tables and chairs.

Acquiring advanced equipment for numerous other business operations also result in large expenditures of capital in order to compete in certain industries. Because of this, banks and other lending institutions provide companies with equipment financing for business owners.

When running a business, one of the hardest questions a business owner has to decide on is whether it is more cost effective to lease or purchase the equipment they need. If you have adequate cash reserves, then it may be in your best interest to purchase.

However, in doing so you can create a huge gap in your cash flow which could lead to serious cash flow issues in the future. On the other hand, when you lease, you can spread out over a specific period of time the amount you pay, which lowers your monthly operating costs.

When it’s all said and done, leasing has its advantages as well as disadvantages. If you’re undecided on whether it’s best you lease or not lease, here are some pros and cons regarding the renting of equipment for your business you can consider.

Equipment Leasing Pros

  1. Lesser Upfront Cash

One of the deciding factors that lead people to choose leasing over renting, is the fact that the latter requires lesser upfront cash. This makes it easier for business owners to spread out the cost of the purchase.

By renting equipment, you’ll pay lesser cash upfront to the rental company and the overall costs for renting will be less than what you would pay if you purchased the equipment.

2. Good for Equipment that Needs Frequent Update

The medical industry is no stranger to ongoing equipment evolution. The nature of the health industry compels medical specialists to stay updated with their equipment in order to better serve their clients and remain competitive. By leasing equipment, you won’t have to constantly buy new machines that creates a huge gap in your cash flow.

3. It’s More Flexible than Buying Equipment

The very nature of business can produce uncertainty at times. This can result in you not knowing whether a new piece of equipment will be overtaken by even more advanced, state of the art equipment tomorrow.

This is a factor that should compel medical personnel to lease, as opposed to an outright buy.This way, you can return the equipment to the rental company if it ends up being redundant in the long run.

4. You Don’t Have to Pay for Maintenance

When you lease equipment, you’re free from all the obligations of maintaining it. If something malfunctions, you don’t have to worry about the costs of repairing it since the rental company will be the one to shoulder the expense. Additionally, if the equipment malfunctions due to aging, or wear and tear, the rental company will simply replace your equipment with a new one.

Equipment Leasing Cons

  1. You Don’t End Up Owning the Equipment

This is probably the biggest disadvantage when it comes to leasing. Even if you’ve been renting it for years, you still won’t be able to own it at the end of your leasing period.

Because of this, the value of the equipment won’t be listed or added to your assets book. While there’s nothing wrong with leasing, there are times when your investors may think of your lease as a liability.

2. You’ll Pay an Interest

Like other types of loans, you’ll also have to pay for interest when you lease equipment. On average, business owners have to pay for up to 5 percent APR as interest for equipment leases. But if you buy the equipment, you obviously won’t pay any interest. However, you may face higher upfront costs.

3. Length of Lease Can be Longer

Some companies impose strict guidelines when leasing equipment. They may impose longer leasing periods which forces you to pay for, and keep outdated equipment. This can put you at a disadvantage since you probably could have used your money to pay for better equipment.

Longer leasing periods may also be a major problem when you don’t have enough storage space for unused larger equipment that hasn’t arrived at the end of its leasing period.

Equipment Financing for Business Owners

Your company’s equipment can make or break your business. Whether you lease or buy, having the right equipment will help you stay competitive.That is why equipment financing for business owners is a proven and useful tool in obtaining new machinery.

If you would like more details or have questions about business loans, contact SMB compass today and schedule an appointment with one of our financial experts. 

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