Equipment leasing can help your business manage seasonal demands, sell brand new products or fit out your business premises.
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What is equipment leasing?
Equipment leasing allows businesses to access the equipment they need, to thrive and grow — without having to tie up valuable working capital (cash). Rather than paying up front, you simple lease or rent the equipment over time — paying back in installments.
The two primary types of equipment leasing are called finance leases and operating leases. Together with hire purchase, these forms of asset finance, allow you to bring in valuable equipment for your company.
Equipment leasing — considerations
Having access to the latest technology and the right tools — can give your business a competitive advantage in the market. Having said this, investing in equipment can be very expensive. Even if you do have the funds to invest, money gets tied up — which may give you cash flow problems.
Leasing is a way around this; it allows you to source equipment and spread the cost — without having to buy the equipment outright. In most cases, the financing is secured against the asset itself.
Lease agreements usually run for a fixed amount of time, although leases can be extended and you may have the option of upgrading equipment — as and when needed. Generally, at the end of a lease, you do not get to own the asset. However, there are some finance providers who do give the option of purchase — upon lease expiry.
Equipment leasing is known as “Ijara” in Islamic finance.
Things commonly financed with equipment leases include:
- Office furniture
- Heavy machinery
How does equipment leasing work?
If your business needs new equipment, you may approach a leasing provider. The lease company can provide you with a form of business loan — which is used to obtain assets or equipment. These assets would be in your possession during the entire lease term and you would make regular repayments.
This form of finance allows your business to manage its cash flow over time — by spreading the costs of expensive equipment. The cash saved, can also then be put to better use — elsewhere in your business. Depending on your lease agreement — you may be able to eventually own the equipment (usually for a small nominal fee).
Benefits of equipment leases
- Access to equipment without big upfront costs
- You can lease a variety of things
- Allows you to control your budget and cash flow
- Maintenance costs sometimes included in the lease
- As the financing is secured by the asset — you can still borrow money for other uses
- Suitable for both new and established businesses
- Equipment can be leased — to test how much value it adds to your business
Limitations of equipment leases
- Leasing can be more expensive than outright purchase — in the long run
- You may not own the equipment — unless it’s a hire purchase
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