The Biggest Advantages Of Equipment Leasing
There is a seemingly endless debate among business owners over whether it is better to own or lease equipment. Proponents of owning equipment state that it gives businesses assets that they can use as collateral for additional funding, and they have access to that equipment whenever they need it. However, equipment leasing has a number of big advantages that many entrepreneurs often overlook.
No debt on balance
While owning equipment can be a good investment for a business, it usually requires a large payment upfront, which means taking out a loan. Equipment leasing, on the other hand, is a monthly expense that does not require the large upfront sum. Loans are marked as debt on the balance sheet and can severely impact a company’s credit rating. Because equipment leasing is considered a regular expense like rent and utilities, the credit rating remains intact, and there is zero debt on the balance sheet – leaving business owners with the ability to seek financing for other aspects of their business.
Upgrading
When purchasing any equipment, the value begins to depreciate the second it is delivered to our business. Having equipment serve as assets is great, but it should be noted that the value of those assets decreases as they are used, and then that equipment needs to be sold and more money needs to be spent in order to get newer or replacement models. Equipment leasing gives business owners the option to upgrade their equipment at the end of the leasing terms. This means that businesses will always have access to the latest equipment, without the worry of having to offload depreciating assets or eating the cost when upgrading.
Tax benefits
When a company purchases equipment, they can claim depreciation every year on their tax return. On the other hand, equipment leasing payments are fully deductible, according to Section 179 of the IRS business tax forms. This allows business owners to recoup money every year, which greatly offsets the cost of equipment leasing.
Credit
Equipment leasing agreements have two major credit benefits. First, because equipment leasing is a low monthly expense, business owners can preserve their lines of credit and use those funds for other projects and expenses. Contrast this with purchasing equipment, where business owners use existing lines of credit to finance the initial purchase. Second, equipment leasing gives business owners the opportunity to improve their credit rating. By paying the equipment leasing invoices on or ahead of time, a company’s standing with credit agencies improves, which opens the door for business owners to apply for lines of credit with higher spending limits. Paying equipment leasing bills in a timely manner also counts toward being able to access larger loan amounts when lenders look at financial histories and credit reports.
While there is no definitive answer as to whether equipment leasing is better than purchasing equipment, the former certainly has a number of financial benefits that business owners can take advantage of immediately.