Small Business Equipment Leasing
Small business equipment leasing, while always popular, may be the only thing that helps you keep your small business alive in today’s credit crisis.
According to the Equipment Leasing Association, as many as 8 out of every 10 small business owners lease some or all of their equipment now. This includes computer leasing, furniture leasing, construction equipment leasing, medical equipment leasing, fitness equipment leasing, commercial equipment leasing, and others. While most leases involve hard goods, they can also include soft goods such as software leasing, installation leasing, training leasing, and maintenance contract leasing.
Why will equipment leasing be even more important to small business owners now?
It’s simple. Small business credit - traditional lines of credit and loans - are drying up faster than the last drops of a canteen in the middle of Death Valley in the middle of the summer. Banks are scared to lend, the government is stepping in, banking regulations are getting tougher and tougher, and it’s leaving the smaller companies in the lurch. Even business credit cards, the last bastion of emergency financing, though probably the worst option, are getting credit limits reduced and rates increased.
If you’re a new business start up, your financing options are really limited these days. Leasing may be one of your only options in this case.
And, if you have bad credit, equipment leasing might be the only option you have. If you know what you’re doing, or use someone who does, it is still a viable option to obtain fair leasing terms despite less than stellar personal or business credit.
Why should you lease?
- No Down Payment. By limiting upfront costs, sometimes 20% or more with a purchase, it makes obtaining equipment more feasible.
- It’s Fast. Getting the equipment you need can often be done in days, versus the weeks or even months trying to finance the traditional way.
- Credit Lines Stay Credit Lines. A lease is not a loan, therefore you can preserve your operating capital and lines of credit.
- Lower Monthly Payments. Usually, monthly payments are less than comparable payments for equipment purchases.
- Fixed Payments. No concerns with your interest rate, and therefore payment, increasing.
- Improves Cash Flow. Your working capital is not affected as much as when you purchase.
- Improves Profitability. When you use the right equipment, it should increase your effectiveness, sales, and, as a result, your bottom line.
- Tax Advantages. Generally, your monthly payments are deductible pre-tax expenses, which can reduce taxes.
- Bookkeeping Simplified. Eliminates complicated depreciation schedules.
- Avoids Obsolescence. Rather than investing in assets that depreciate, you can invest in the latest technology and it’s easier to stay on the cutting edge without affecting your bottom line.
So, how do you get a small business equipment lease?
First, understand that leasing equipment isn’t as tough as other types of financing. For transactions of less than $75,000 - $100,000, you typically don’t even have to provide financial statements as the equipment itself is the collateral. It usually involves a 1-page application, and you get an answer pretty quick … within a few days, versus the weeks a loan application might take.
Equipment leases generally fall into a few categories:
- Small Ticket. Under $100,000
- Middle Ticket. $100,000-$2MM
- Large Ticket. $2MM+
You can get a lease from a bank or a leasing company.
Typically, a bank’s rates will be more favorable; however, you need stellar credit and usually a history with them. What happens with the equipment at the end of the lease is often an issue, best to be clear on this upfront if you go this route.
A leasing company, while perhaps with not as good rates, is usually much easier to obtain and has more reasonable terms.
There are also equipment leasing brokers out there, a lot of them. There’s nothing wrong with working with one, they work in much the fashion as insurance brokers. If they’re good, they can be a Godsend for you, as they know the current status of leasing companies and can place your deal in the best spot.
The trick, of course, is finding an ethical, knowledgeable, and effective broker. Unfortunately, that’s easier said than done.
If you would like our recommendation for a broker who fits this bill to a tee, fill out the Contact Form on this site.
ethX - Ethical Resources For Equipment Leasing
Ethical Resources For Small Business Owners
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