Short on capital but long on equipment needs? Consider leasing instead of buying. Leasing frees up capital because it eliminates the large cash outlays and down payments required when purchasing or financing equipment.
"The smart way to obtain equipment is to borrow capital from a bank because it costs less to repay the loan and you ultimately own the equipment," says Carl Evans, who, with his wife, Norma, owns and operates Santa Fe Printing, a full-service print shop in Santa Fe, New Mexico. Unfortunately, you might not have that option. Because the Evans didn't qualify for a bank loan when they needed $18,500 for a new printing press, they leased the new press at $550 per month for four years.
"Leasing is more expensive in the long run," says Carl. "You pay for use of the equipment; you pay for depreciation; you pay interest."
It may be your only choice, however. If so, negotiate every clause to get the best deal you can before you sign a lease, says Carl, a former PIP Printing franchisee. "Lease terms are not written in stone until you sign," he says. "Study the contract carefully to verify the term of the agreement, renewal options, equipment value, payment amounts, cancellation penalties and what happens to the equipment at the end of the lease."
Whatever you lease for your business is deductible as an operating expense (though an outright purchase may prove more beneficial, taxwise). Leasing makes it possible to acquire needed equipment--anything from copiers and office furniture to vehicles and heavy machinery--when you can't otherwise afford it, while keeping your balance sheet healthy.
Paul DeCeglie is a former staff reporter for Journal of Commerce and American Banker. He can be reached at MrWritePDC@aol.com