| One of the biggest expenses that any enterprise | | | | you to make payments for the entire contracted lease |
| faces is the purchase of new technical equipment. | | | | period even if you wish to return the equipment earlier. |
| Given the cash flow crunch in most small businesses, | | | | Before you make the decision about leasing technical |
| outright purchase of new equipment might not be | | | | equipment for your small business, here are a few |
| feasible. Added to that is the fact that computers and | | | | factors that you would do well to consider:o Type of |
| other technological equipment quickly become | | | | lease - There are two types to choose from: a capital |
| obsolete. A growing small business may need to | | | | lease or an operating lease. A capital lease is similar to |
| refresh its technology in some areas every eighteen | | | | a loan. The equipment that you lease is considered an |
| months, but investing in the latest gadgetry may be | | | | asset on your balance sheet, and you take the |
| beyond its means. In such a situation, is leasing the best | | | | benefits such as tax depreciation and risks including |
| way out? | | | | obsolescence of ownership. With an operating lease, |
| We've put together a primer of the advantages and | | | | the leasing company retains ownership, and for tax |
| disadvantages of leasing technical equipment and also | | | | purposes, the equipment is considered a monthly |
| the factors you need to consider before making the | | | | operating expense rather than a depreciable asset. |
| decision. | | | | Operating leases are generally more popular among |
| Advantages: | | | | small businesses because they don't tie up funds and |
| - Leasing technical equipment offers you a way to | | | | are usually short-term.o Buyout option - There are two |
| keep it up-to-date. Computer technology becomes | | | | options available to you - a fair-market value (FMV) |
| outdated sooner than you know. With a lease, you do | | | | option and a $1 buyout option. FMV means you can |
| not have to worry about that. For example, let's say | | | | buy the equipment at the end of the lease at its |
| you have a two-year lease on a printer. Once that | | | | fair-market value. A $1 buyout option means the |
| lease expires, you can lease the latest version of that | | | | equipment is yours for $1 when the lease expires. The |
| printer. | | | | monthly payments on FMV leases are usually lower |
| - You will have predictable monthly expenses. You will | | | | than on $1 buyout leases.o The length of the lease - |
| know exactly how much you have to pay each | | | | Typical leases for computer equipment run 24, 36 or |
| month, and that can help you budget more effectively. | | | | 48 months. The longer your lease, the lower your |
| - Many small businesses struggle with cash flow and | | | | monthly payments will be, but you are also likely to pay |
| because leases rarely require a down payment, you | | | | more over time with a longer lease.o Insurance for the |
| can acquire new equipment without tapping into your | | | | equipment - Some leasing companies require you to |
| precious funds. Instead, that cash can be deployed in | | | | insure the leased equipment. If not, a charge may be |
| marketing, advertising or other functions that can help | | | | added to your monthly payment to cover the cost of |
| grow your business. | | | | insurance.o Termination options - You may not need |
| - Leasing technical equipment can enable your small | | | | the equipment you are leasing after a point or you |
| business to acquire sophisticated technology such as a | | | | might want to upgrade to newer technology sooner |
| voice over internet protocol (VoIP) phone system, | | | | than you expected. Find out if you can pay off your |
| which might not be affordable otherwise. | | | | lease early, and if there's a prepayment penalty. |
| Disadvantages: | | | | The main criteria while leasing technical equipment |
| - Leasing is almost always more expensive than | | | | should be whether you can afford to tie up a large |
| purchasing, especially if it's long term. You pay more in | | | | amount of cash which could otherwise be used to |
| the end because when you add up the monthly | | | | establish or grow the business. Consider the pros the |
| payments, the total will invariably be higher than the | | | | cons of leasing and figure out how it will affect the |
| actual cost of the equipment. | | | | running of your business before you make that call. |
| - Some leases may have strict terms which require | | | | |