When Lease Is More
Entrepreneur magazine, September 1999
One way to keep equipment costs down is to lease rather than buy. These days, just about anything can be leased--from computers and heavy machinery to complete offices. The kind of business you're in and the type of equipment you're considering are major factors in determining whether to lease or buy. If you're starting a one-person business and only need one computer, for instance, it probably makes more sense to buy. On the other hand, if you're opening an office that will have several employees and require several computers, you may want to look into leasing.
According to the Equipment Leasing Association (ELA), approximately 80 percent of U.S. companies lease some or all of their equipment, and there are thousands of equipment-leasing firms nationwide catering to that demand. "Leasing is an excellent hedge against obsolescence," explains Laurie Kusek of the ELA, "especially if you're leasing something like computer equipment and want to update it constantly."
Other leasing advantages include: lower monthly payments than you would have with a loan; a fixed financing rate instead of a floating rate; tax advantages; conservation of working capital and no cash-devouring down payments; and immediate access to the most up-to-date business tools.
One drawback to leasing, however, is that you'll probably pay a higher price in the long run than you would have with a straight purchase. You may also have to retain the equipment for a certain period of time--a difficulty if your business is in flux.
For more information on leasing, take a look at the member directories offered by the ELA (http://elaonline.com/WhosWho.cfm) and the Business Technology Association (http://www.bta.org). The Leasing Sourcebook (Bibliotechnology Systems and Publishing Co.) is another directory of leasing companies. You can also check the Yellow Pages.
Excerpted from Start Your Own Business (Entrepreneur Media Inc.). To order, visit http://www.entrepreneurmag.com