The Advantages and Disadvantages of Equipment Leasing
By Amanda Martinez
For many businesses and farming operations, the right equipment is essential for ongoing work and progress to continue. There are a couple of different ways to finance equipment, and leasing is one of them. In some ways, equipment leasing seems like an ideal solution for certain businesses. There are clearly some benefits, but there are some drawbacks as well, as this blog explains.
The Benefit of Reducing Operating Costs
For many businesses, cash flow is a primary concern. The constraints of available cash and ongoing cash flow can play into decisions on how to finance equipment. This is where leasing can offer a substantial benefit. Generally, businesses that lease equipment will pay fewer upfront costs and have lower monthly payments. Unlike traditional equipment loans, there is no down payment requirement. Monthly payments are usually lower as well due to the way leases are structured.
The Benefit of Using the Latest Technology
Technology changes quickly these days, and sometimes a piece of equipment can be outdated before it is even paid off. Another benefit of leasing for many businesses is being able to use equipment that is outfitted with the latest technology without having to keep that piece of equipment for a long period of time, during which it may become outdated. With newer equipment in your fleet, you can take advantage of new equipment advancements.
The Benefit of Experiencing Less Downtime
Having equipment that seems to always be in need of repair can be frustrating and expensive. Since leasing allows business owners access to newer equipment, the need for regular maintenance, servicing, and repair can be greatly reduced. Not having your equipment in the repair shop as often can translate into less downtime and more productivity.
The Drawback of Tax Implications
As with all things, there are also some potential drawbacks to leasing. One disadvantage may be that your tax liability can be negatively impacted. For more information about the tax implications of leasing, you should consult your trusted CPA or tax advisor.
The Drawback of Lack of Equity
Finally, the very definition of leasing means that you never actually own the equipment you are leasing. For some businesses, this lack of equity in the equipment can be a real disadvantage. On the other hand, some leasing programs do allow for the business to eventually purchase the leased equipment at the end of the lease.
Federated Bank has a leasing program for business owners, farmers, and even municipalities that allows for the lease of equipment, vehicles, and buildings. Unlike many equipment leasing programs, ours is relationship-based rather than transaction-based. In other words, you know us and we know you so we already have a level of trust between us. For more details on how our leasing program works or to determine whether equipment leasing is right for you, visit our website or call us at 800.843.3708 and schedule an appointment to talk with me at your convenience.
