When you’re starting or growing a business, cash is often in short supply. One way to spend less is to lease essential office equipment instead of buying it. Unlike renting, which is much too expensive to consider as a long-term alternative, leasing computers, fax machines or furniture offers a number of critical advantages:

* Leasing improves your cash flow. The main advantage of leasing is that it frees up cash. Equipment leases rarely require down payments, though you may have to set aside some cash for a refundable security deposit. By contrast, loans to finance the purchase of equipment typically require down payments of up to 25 percent or more.

* Leases are easier to finance than purchases. Before extending a capital equipment loan, banks will usually want to see two to three years of financial records, which most new companies do not have. Leasing companies, on the other hand, usually require only six months to a year of credit history before approving a furniture or office equipment lease.

* Leasing makes it easier to keep pace with technology. Leasing is especially attractive if your business relies upon cutting-edge technology such as the latest computers, communications devices or other equipment. A series of short-term leases will cost you less than buying new equipment every year or two. Some office equipment leases even have yearly computer upgrades built into them, thus eliminating that difficult decision of whether you can afford to upgrade or not.

* Equipment leasing allows you to afford more. While you might not be able to afford to purchase those pricey ergonomic chairs your employees are asking for, you may be able to lease them. Better furniture and equipment can create a more professional image and boost the perception of the business

* Leasing has balance sheet benefits. You may be able to exclude some leased assets and related obligations from your balance sheet. Such moves might improve financial indicators such as your firm’s debt-to-equity ratio or earnings-to-fixed-assets ratio. Bear in mind, however, that accounting rules do require your balance sheet to report assets leased under certain types of agreements.

If you do decide to lease equipment, keep the term short – two years is ideal. Try to negotiate a “modern equipment substitution clause” that lets you update or exchange your equipment so you don’t end up paying for obsolete technology. Also, insist upon a cancellation clause that lets you pay a fee to cancel the lease. Note the cost of any cancellation penalty.

Finally, if you think you might want to purchase the equipment after the term of the lease has ended, look for a lessor that offers an option to buy. It is usually advantageous to secure the services of an equipment leasing broker who knows the proper structure to fit your company’s needs.



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