About Equipment Lease - Equipment Leasing

Equipment Lease Benefits - Equipment Leasing Tips

equipment leasing

Equipment leases allow a business to finance equipment by paying monthly payments for a certain length of time. Monthly payments in an equipment lease include an agreed-upon interest rate.

Here are some benefits of equipment lease:

At first, equipment leasing provides a business with a way to keep cash flow to invest in other activities. Instead of paying upfront prices that can run into the thousands, leasing allows a business to spread out payments. Most leasing companies need a business to make a small down payment on the equipment being leased. Your down payment is usually the equivalent of two monthly payments for your equipment.

Secondly, you can get an approval decision on an equipment lease usually in short time, probably one to two business days. Equipment leasing companies seek to verify the existence of your business. A credit check is performed on your business. Most leasing companies require bank statements and tax returns of the past two years. New businesses might be approved for leases based on personal credit history. You might still get approved for an equipment lease with an unfavorable credit score. If you have a credit score of less than 600, you are likely to have a higher interest rate on the lease of your equipment.

At the end of your lease term, you have the option of renewing your lease, buying the equipment at fair-market value or returning the equipment to the leasing company. Some leases allow a business to skip payments. Deferred payments for 90 days and step-up leases are other options. Step-up leases allow a business to make small payments at first, then larger ones as your business grows. The leasing company usually retains ownership of the equipment.

In the last 30 days of your lease, commonly you are required to give your leasing company written notice of your intention to buy or give the equipment back. The buyout option allows a business to purchase the equipment for its fair-market worth. In case that you chose a lease agreement with a 10 percent lease buyout, you must pay 10 percent of the original purchase price. The benefit of a 10 percent lease is that you'll make lower monthly payments. Capital leases allow you to buy the equipment for $1 at the end of the lease, but you must make higher monthly payments.

Another benefit, your payments are 100 percent tax deductible, if the equipment you're leasing is used to operate your business, the equipment must be a necessity to operate your business for it to be considered 100 percent tax deductible. It might be the best argument for leasing equipment. If the equipment isn't used to operate your business, it might still qualify for a deduction, but not 100 percent. For instance, if you own a bakery and you're leasing an expensive mixer to bake cakes, your lease payments on the mixer are 100 percent tax deductible. If you lease a credit card machine, you might get a deduction but not a full one. The credit card machine is not a necessary piece of equipment used to operate your business.