Leasing equipment, vehicles or furniture is an attractive option for many small businesses because it can provide more benefits than outright purchase. It depends on the type of equipment, your expected needs and the lease arrangement.
Equipment lease payments may be lower than the monthly costs to pay for the assets. But over the life of the lease, you will generally end up spending more than the equipment's purchase price. The result can help improve the cash flow of a business.
One drawback in leasing is the loss of the tax benefits that accrue from the capital depreciation of major items such as buildings, major equipment, computers and vehicles. An owner who purchases such items can depreciate their declining value on successive tax returns.
Look closely at lease rates. They may be low enough to offset the future loss of depreciation value.
Computers are ideally suited to leasing arrangements. For example, if there are major improvements in a computer system during the period of the lease, the business owner may be able to upgrade the system by changing the terms of the lease.
The small business that owns its equipment can sometimes arrange a sale or lease back agreement to a bank, finance company or leasing firm. The buyer then leases the equipment back to the firm.
Stephen L. Rosenstein is co-chairman of 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 representatives, e-mail email@example.com