Consider leasing gear to conserve cash

Stephen L. Rosenstein | Tips for Entrepreneurs

July 27, 2008

If you plan to invest in new equipment for your business sometime soon and are considering a loan to finance the purchase, you might also want to investigate leasing as an option.

No matter what type of business you are in, almost any equipment you would need to purchase also can be leased. According to the Equipment Leasing and Finance Association (ELFA), U.S. businesses lease about $218 billion worth of equipment annually.

Leasing can conserve cash. A loan usually requires a down payment, while a lease does not. A lease generally does not need a down payment and finances only the value of the equipment, which is expected to be used during the lease term. When you purchase the equipment, you assume the risk of its becoming obsolete.

Leases are not loans, so their costs are calculated differently. Payments on an operating lease are considered an overhead expense that can be deducted from business income.

Stephen L. Rosenstein E-mail | Recent columns

You can tailor a lease to fit your month-to-month, seasonal or annual cash flow needs. If your customers or competitors demand that you always have the latest technology, a short-term lease can help conserve cash.

The ELFA, a trade group of leasing companies, has created a Web site called Choose Leasing, which explains leasing basics. It's at www.chooseleasing.org.

Stephen L. Rosenstein is co-chairman of the Greater Baltimore SCORE Chapter No. 3. Call 410-962-2233 to speak to a SCORE counselor or visit www.scorebaltimore.org. To send a question to SCORE, e-mail smallbiz@baltsun.com.