Equipment leasing can be an economically viable option tohas several benefits, which explains why many American businesses opt to lease rather than buy equipment.
1. Cost efficiency
Your leased equipment will create revenues that you can use to pay the lease payments. This will enable you to match your expenditure to the income. In effect, the machinery will be paying for itself.
2. Preservation of working capital
allows you to save for allocating cash funds where they are most needed. You can use the available working capital to finance crucial profit-generating ventures such as research and development, production, and marketing. You are also not required to pay taxes upfront upon acquiring the asset, but you will give monthly payments during the lease.
A lease can have a wide array of purchase options, and you can carry out easier upgrades, trade-up, and add-ons to the equipment at any time. In contrast, buying outright often has limited options since the seller is only interested in the immediate cash.
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4. More Purchasing Power
You can get more purchasing power when you lease than when you pay in cash or using a loan since you do not pay tax upfront. If you took a bank loan, the lender might provide only a fraction of the equipment’s total cost. You would have to cover the rest using cash down payment as equity.
5. Financing of soft costs
You will avoid paying for initial equipment acquisition costs such as installation, freight, computer software, and initial set-up costs with a lease. The machinery owner can include such “soft” costs in the lease, effectively minimizing your initial cash expense.
6. Easier Budgeting
You can easily customize the equipment leasing terms and purchase options to meet your budget. You may choose terms that match your projected and seasonal cash flows. Besides, interest rate fluctuations cannot put your business at risk since your lease will most likely be based on fixed rates.
Businesses should take advantage of options available when trying to acquire equipment or machinery. It is unnecessary to buy expensive equipment outright; instead, you could lease them for some time and pay only a percentage of the total cost.