home loan finance blog
Everybody must have come across the term leasing, in one context or another. Take, for example, leasing a car. If we wish to drive a car that we cant afford to buy or wish to change the car often, say every three years, then leasing the car is the best option.
When a company is short on cash but needs equipment, it can lease it. The owner buys the equipment with a loan and then rents it to a company for a fixed monthly fee. All kinds of equipment, like medical or transportation equipment, can be leased. There are different companies specializing in leasing such equipment.
Should my company lease or buy the equipment?
One has to consider different parameters before making the decision about leasing or buying the equipment. The most important consideration is the financial aspect. If we wish to buy the equipment, are we going to get the necessary credit? The equipment might be prohibitively expensive for an emerging business. When this is the case, a company may be better off leasing the equipment.
If we buy the equipment, we can claim a tax benefit equivalent to the depreciation value of the equipment. On the other hand, if we lease it, are we going to get the tax deduction equivalent to the lease amount we pay? Therefore one has to be very careful about the tax guidelines and the respective lease terms while finalizing the lease. Also remember the lease financing is usually more expensive than bank financing. But it is easier to obtain for small amounts. Also we can easily upgrade the equipment after the end of the lease without worrying about selling the outdated equipment.
How to lease the equipment
Once we decide to lease the equipment we have to search for the best deal. A good deal will make a business success story. On the other hand, an unfavorable deal might prove to be the end of the emerging business. So, it is extremely important to scrutinize the legal fine points when choosing the lease. The leasing company will look for the best deals and will take care of the legal issues related to the deal.
Equipment leasing is an option to look for a company that is diversifying and may not wish to buy the equipment. Or it may be a good choice for a company that is just starting up. Even so, leasing might be more expensive than buying the equipment.