For small businesses just starting out, or even well established companies looking to save a little money, opting to lease equipment instead of purchasing can make a big difference when it comes to budgets and balance sheets. Leasing office supplies that need to be replaced every couple of years, like a Xerox machine, will make it possible for your company to upgrade to the latest versions without having to pay an exorbitant cost, said Jeremy Sacco, Editorial Manager at BuyerZone, an online service that matches buyers with prospective sellers and lessees.
One of the biggest perks of leasing is maintenance coverage. "One of the primary reasons to go with leasing in the first place is that you can lean on someone else to do the maintenance work to keep [the equipment] running," Sacco said. Be mindful, though, when you're in the market for an investment like a heavy piece of machinery - such as a forklift - that you're going to use every day until it wears out. In those cases, it might make more sense to purchase because the item will likely need replacing before the lease expires.
Of course, choosing an equipment leasing company that's right for you will depend heavily on the size of your company, your geographic location and, most of all, the particular product that you need. But the same basic procedures - and red flags to be wary of - apply. Here is a list of things to consider and questions to ask a potential leasing company.
1. How familiar is the company with the equipment that you need?
Unlike a bank, which doesn't care what specific purchases you make with your loan, equipment-leasing companies should have a stake in the item that you're leasing. "You want to choose someone who's familiar with whatever it is that you're leasing," Sacco said. If it's a forklift, for example, you want a company that's familiar with heavy equipment. "Make sure that they'll know the ins and outs of the equipment that you're using." This sort of expertise will help you choose a piece of equipment most suitable for you, plus it will make things a lot easier when you need a repair or upgrade.
Like with any business transaction, choosing the right leasing equipment company depends a lot on its service representatives. Their approach is important, Sacco explains, because you want "someone who is going to consult with you and help you choose the right equipment, not just take your order and slap you into a lease." Sacco added, "Look for a company who's working with you to get the right answer."
3. What are my payment options?
While fixed payments are the norm, they are not your only option, according to a guide written by BuyerZone. "If your company's cash flow ebbs and flows with the seasons, you might want to consider a skip lease," which would allow you to skip payments during slow months without being penalized. Alternatively, "step-up leases provide a solution for companies with limited cash that are depending upon the acquisition of specific equipment to increase revenue." This type of lease "keeps payments low at first then ramps them up according to a pre-determined schedule."
4. Is there room to negotiate leasing prices?
There should always be room to negotiate prices, Sacco said. "If the first lessor is too rigid, try someone else." Other techniques to reduce costs include longer-term leases and being willing to downgrade your equipment preferences a bit.
5. What is your company's policy if something breaks?
Maintenance and operating supplies are generally included in leasing agreements, so you'll want to know what the company's policy is for fixing things in a timely manner. If you're leasing a Xerox machine, for example, "find out if it breaks down, how quickly a representative will get there to get it working again," Sacco said.
6. Do you offer buyout leases?
If you're leasing a piece of equipment that likely won't need to be replaced within a couple of years, it is worthwhile to inquire about buyout leases, where you have an option to buy the equipment from the lessor at a fair market value once the lease expires. Sacco recommends this approach when dealing with heavy machinery, like a forklift or vehicle - equipment that you plan to keep forever or for as long as it works. A one-dollar buyout is common for fair market value, and you should structure your leasing payments so that you can cover the cost of the item over several years and then purchase it in the end.
7. Are there any tax benefits to leasing equipment instead of purchasing?
Tax benefits will really depend on your company's financial situation, but a lease is often considered an operating expense instead of debt. In other words, Sacco explains, if your company takes out a loan from the bank to buy this equipment, you will have debt on your balance sheet. If you lease that equipment, however, it's considered an operating expense, and that can be helpful for taxes and potentially make your business look better on a balance sheet.
8. Can I have a list of verifiable references?
It may sound obvious, but remember to do your homework before choosing a company, and make sure you talk to people that have used its services before. Someone who boasts lots of great, satisfied clients but doesn't have any actual references might be a red flag, Sacco warns, so it's up to you to request actual contact information in order to hold the company to its word.
9. Do you have records of your accreditations and government licensing?
You should always check with the Better Business Bureau just to make sure no complaints or fishy-looking statements have been filed about the leasing company. There should be state-by-state financial regulatory agencies, as well as financial licensing, that can confirm a company's legitimacy.
10. What information do you need about my business?
Businesses should be ready to share basic financial information as they would with a loan: balance sheets, credit scores, and the like. But, Sacco said, it should be simple for a business interested in leasing for the first time to obtain an application before they're ready to apply, just to see what types of information are required.
Most importantly, as Sacco said, "Like anything, look for a company that's been around for a while," and has established its credibility in the field.
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