Equipment Financing (Leasing)
1. What is Equipment Leasing or Equipment
Financing?
2. Who is This Good For?
3. When is This the Best Choice for
Me?
4. When is This Not Advised?
5. Tips for Getting Approved.
6. Ingredients You'll Need on
Hand.
7. Watch Out For...
1. What is Equipment Leasing or Equipment
Financing?
Instead of buying equipment, you lease it -- you contract to pay
a monthly rental fee to use it. Equipment leasing is available for
all types of equipment from major manufacturing equipment to smaller
equipment, such as computers. Equipment leasing financing is available
from banks, finance companies and from equipment manufacturers or
retailers.
2. Who is This Good For?
Companies that have to make major investments in equipment that
don't want to tie up large sums of money;
Companies that need to change their equipment frequently, so they
don't have capital tied up in soon-to-be-obsolete equipment;
Companies with good cash flow that can easily afford the monthly
payments but don't have the money to lay out for the purchase of
equipment
3. When is This the Best Choice for Me
When you need equipment to do the work you have orders for, but
you don't have the money to purchase it;
When your bank is dragging its feet coming through with a loan
for purchase of equipment, and you can get it faster by leasing;
When you've got a pretty good credit history;
When there are tax benefits to leasing.
4. When is This Not Advised?
When you can afford to pay cash;
When the cost of purchasing the equipment is far less than the
cost of leasing, and the amount of money is not major, so that you
could put it on a line of credit;
When you are undertaking a major financial obligation without
a good sense of how it will be paid off;
When you have a poor credit history and you are likely to be turned
down; the bank or company granting you the lease will do a credit
check and their inquiry will go on your credit record;
When there are tax benefits to purchasing rather than leasing.
5. Tips for Getting Approved
Shop carefully for the equipment you need; don't lease one type
of equipment rather than another just because the lease is easier
to get; make certain it's the right equipment for the job;
Consult your CPA about the tax implications of leasing to determine
whether it is better to buy or lease;
If you have orders or contracts for work to be performed on the
equipment and that show you will be able to pay off the lease, bring
them along to show the potential lessor;
First negotiate the cash sales price, so you'll know the value
of the equipment if you were to buy it rather than lease it; then
negotiate on both the total price of the equipment and the interest
rates to be charged;
Consider going to your bank or regular lender for the lease; they
may give you a better interest rate than the equipment manufacturer
or vendor.
6. Ingredients You'll Need on Hand
- The lessor will thoroughly examine your credit history;
- You may have to pledge additional collateral to secure the
equipment; after all they are making you a loan;
- Lessors may want to see a basic
financial package or personal tax returns.
7. Watch Out For...
If you don't own the equipment, you can't use it as collateral
against a loan in the future.
Interest rates can be very high. Negotiate the rate.
Overly long contracts. Will you be stuck with the equipment even
after it's obsolete or if your work pattern change? Examine the
contract to see if you can get out of it if your needs change.
What happens if you want to (or need to) skip a payment every
once in awhile? Unless you've got such possibilities covered in
the contract, your equipment may be repossessed.
Remember that a lease is a long-term contract, so it's hard to
get out of early.
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