23 April

To lease or not to lease, that is the question

To lease or not to lease, that is the question.

Philosophical questions have multiple answers, financial questions usually, boil down to a yes or no simply depending on your business making or losing money. For leasing, there is no clear cut answer as the immediate benefits of having the latest and the greatest equipment can be wiped out once said assets become obsolete, the thrill of not having to pay for maintenance and repairs can be offset if your lessor takes a long time to respond in case urgent repairs are needed… In the next few paragraphs, I will assume you are a competent entrepreneur and keep definitions and obvious pros and cons to a bare minimum, the subject I wish to expand on was elegantly stated by by Chad Brooks in Business News Daily:

“The best advice on choosing a quality lessor is to examine them as closely as they’re examining you. Give preference to those that are willing to work with your business as a partner.”

It sounds simple yet to determine the underlying motivations of a vendor\lessor can require some digging. A good partner will warn you if you re about to make a mistake and offer alternatives, a bad actor may feel compelled to push the one product they are selling without considering other possibilities, sometimes it can be subtle like not explaining the difference in tax deductions and equipment insurance if its detrimental to their sales pitch. If your only tool is a hammer then all your problems look like nails, on the other hand, if your perspective provider has a Swiss knife containing loans, corporate cash advances and lines of credit suddenly your options are open and maybe a combination of a lease and a cash advance would be best but you ll never find out if your vendor is a one trick pony. To prove this point I will briefly list an aggregate of several articles of the top 5 reasons in favour of leasing, you can expect the vendor to sing the praises of these five points during the majority of your conversation. Afterwards, I will list some of the drawbacks of leasing, keep in mind that if your perspective lessor never mentions any of those in your discussions they may not have your best long-term financial interests at heart.

Pros:

Control and conserve cash, Spending 50k on a new piece of equipment up front prevents you from spending that cash on advertising the benefits that trickle down from this new addition. There is also something to be said about consistency; the cost of equipment repair is included in the leasing price and when budgeting fewer surprises is better.

Negotiating a lease agreementUpgrade outdated Equipment or obtain the equipment you need without compromising quality over pricing, in case you are leasing an industrial-sized refrigerator, and it does not need updating every 2 years (unlike computers) you can opt on a lease with a 1$ buy out option at the end.

Potential tax benefits may include a full deduction of lease payments against current earnings, but purchasing the equipment usually gives you a deduction in the first year of usage.

Your Monthly lease payments register as a business expense instead of long-term debt. Having no debt on your balance sheet helps in many areas not directly connected to leasing.

You pay nothing up front, and in some cases, you can negotiate a lease where the first payment is pushed back by a few months so you can have your cake and eat it too as by the second or third month whatever gains the new equipment provides will start to pay dividends.

Cons:

You’ll pay more in the long run. This is self-evident but an $8000 security system will cost $11,520 on a 3-year lease at $320 per month.

You’re obligated to keep paying even if you stop using the equipment, in the case you decided to add pizza to your menu and a pizza oven to your restaurant not anticipating Pizza Hut opening a location on the other side of the street.

When purchasing equipment You get to call the shots regarding maintenance,

In some cases, leasing companies require you to ensure the leased equipment. If you don’t, fees may be added to your monthly payment to cover insurance.

In conclusion, leasing can be a solid option if you choose the right partner, I would recommend a generalist (private lending\cash advance company) as the capital comes from private investors and entrepreneurs instead of faceless masses of shareholders, the corporate culture resembles a team of cheerleaders doing backflips and cheering as your company succeeds as opposed to a pack of vultures circling around your business hoping for a late payment so they can re-poses the equipment. It is wise to seek out the former while avoiding the latter and by listening to what is said and what is omitted from the offer you will acquire the wisdom to tell the difference.

 

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