Top Tips On Equipment Leasing That Every Entrepreneur Should Know
While it is true that most new businesses and startups know the numerous benefits of leasing equipment, it is equally important to research the issue of financing. The benefits of leasing include conserving cash and getting tax benefits, which means vital savings for a new business. It is pertinent for the business to ensure that it avoids making costly mistakes when leasing equipment. Following are some tips that will come in handy when making the leasing decision:
- You should not assume that the equipment manufacturer’s financing firm or your bank will give you the best lease terms. Equipment lease providers are the most common medium for accessing equipment leases and you should do some research and compare lease terms, rates, and fees from different companies.
- You need to organize your financial details and understand your company’s credit before you decide to approach the equipment lease provider. Being prepared will come in handy when you decide to negotiate for the best leasing rates.
- Always make sure that you carry out due diligence on the financing provider that you want to use. After coming up with a list of providers, check them out thoroughly and you can do this using online sources and social media sites. Make sure that you only work with established solution providers.
- Make sure that you are prepared to answer questions about any negative business results you may have experienced. The lease financing provider may need to know about a business loss you may have had. Remember that you do not need to pay application fees to the equipment leasing company.
- You need to inform the equipment lease provider how your business stands to benefit from the equipment acquisition. Providing a projection of the cost savings as well as the incremental margins you will realize is important.
- Do the calculations and determine if Section 179 ‘deduction and bonus depreciation’ benefits your business. Section 179 may allow your business to deduct the cost of specific business equipment. Do find out your options when choosing the equipment.
- Make sure that you understand how the Fair Market Value Lease differs from the one Dollar Purchase Option Lease. Most businesses opt for the Fair Market Value (FMV) Lease that offers flexibility and the lowest monthly payments. This option may also offer tax incentives. The $1 Purchase Option Lease allows the business to purchase the equipment for one dollar at the end of the leasing period.
- If you have several equipment pieces from different vendors, consider bundling them under one lease. You can use an independent equipment lessor to simplify your efforts. You need to realize that rates are often higher when you have smaller transactions and bundling acquisitions will result in lower rates.
- Talk to your equipment vendor about the payment terms in order to defer part of the equipment cost, make progress payments, coordinate deposits, and make any payments for performance retention.
All in all, knowing what you need and what you can pay for will really help you to make the best decision. Think about your future needs too when choosing equipment to avoid investing in equipment that will soon be redundant or obsolete.