It is a type of business financing. Instead of buying a piece of equipment for the business, the business owner rents the equipment for a certain amount of time. The contract is signed by both parties. Once the contract period is over, the business owner either can return the equipment, can extend the lease, or purchase the equipment. Equipment Leasing is the best option, especially for small business owners. As it helps them to use the equipment at a low cost. Spending a huge amount of money is not always possible for business owners.
Numerous things can be leased. It can be Computers, heavy machinery, office furniture, Air-conditions, vehicles, etc. Mostly it depends upon the kind of business you are doing and the type of equipment you need for your business purposes. Many factors are to be considered while deciding whether you need to buy the equipment or lease it.
2 Types of Equipment Leasing
- Capital Lease- This type of lease istaken by thecompany foralong–term period. It is non-cancellable. In thistype of lease, the company purchase the equipment after the lease period is over. The lessee is responsible for this equipment. The risk is upon the lessee who takes maintains the assets, takes care of the maintenance of the equipment, its fluctuating value, insurance, etc. But, the asset is not owned by the lessee.
In the Balance sheet of the business owner, the assets and liabilities of the equipment are recorded. This type is used by companies when they want to rent expensive equipment. But don’t have funds.
- Operating Lease– This type of lease is taken by the company for a short-term period. This type of lease can be canceled before the lease period ends. Here the owner of the asset is the lessor. He also needs to take the risk of the insurance of the equipment. The lessee may with prior notice cancel the lease. But this type of lease must be chosen only if the equipment is needed for a short period only.
Advantages of Equipment Leasing
If the business has the right equipment, there will be a significant increase in sales. The right equipment enhances the quality of the products thus showing professionalism. It is the best way to attract customers to the business.
Benefits of Equipment Leasing
You can rent a piece of equipment that is not affordable to your company. The benefit is a low monthly rate as compared to a loan. If the business needs equipment that keeps evolving and has a short life span, then choosing a lease option is much better. It gives access to as much working capital as possible. No big cash payment is needed.
Equipmentleasing is a helpful tool for businesses for acquiring equipment. It helps in business success. So companies should take the business to another level by using such tools by maintaining their credibility in the market.