When it comes to making a decision about a critical capital acquisition, your company generally has one of three choices. You can rent the equipment, buy new equipment outright or you can look for a leasing solution.
Depending on the nature of your need, leasing can be the most effective solution, particularly in cases where you don’t plan to use the capital often or for very long. However, leasing solutions carry with them their own list of considerations, and this blog will walk you through them.
Explore the points below and use them to help you determine if leasing is the right choice for your next capital purchase.
Understanding the difference between operating and financing leases
Operating leases are right-of-use agreements that provide you more flexibility throughout the lease as well as a lower monthly payment. In addition,
these leases do not have a fixed buyout at the end. These leases also typically include replacing existing equipment with new technology and the flexibility to control the terms of the lease by renting month-to-month or extending the lease at a reduced price.
Finance leases are an alternative to a cash purchase or bank loan solution. These leases feature a fixed buyout at the end, typically $1, and have a higher monthly payment than operating leases. However, a finance lease transfers all the benefits — and the risks — of ownership to the lessee.
Five other things to consider about leasing
In addition to the different types of leases available, there are other things you need to consider when reviewing your leasing options. This includes:
- Cost. Leasing is generally more expensive than purchasing in the long run, but it allows you to acquire the necessary equipment at a much lower upfront cost.
- Down payment? Maybe not. Many leases do not require a down payment as financing a capital purchase might.
- Financial options. Leasing allows your company to distribute the associated costs over a period of years to make the payments more manageable. In addition, lease payments are also a business expense, making them tax deductible, lowering your net costs.
- A more diversified portfolio. Adding leasing solutions to your portfolio can further diversify it, and there’s generally no need to involve a lien holder.
- The equipment for your needs. Finally, leasing provides you the most up-to-date equipment, allowing you to replace an outdated, existing piece of equipment with a new model in a relatively brief time frame and for a fraction of the initial cost.
To learn more about leasing and other purchasing options, contact Topco Indirect to help you determine what options are best for your company.