What are the advantages & disadvantages of Equipment Leasing?
28th January 2022
Businesses who need access to the latest equipment for their employees may find equipment leasing to be useful. Asset finance can come in handy for business owners who want to acquire equipment that would otherwise be unaffordable or come at a huge cost to a business’ operating costs.
The savings a business can make by using equipment leasing can open up working capital that can be used in other departments without taking up large loans to buy equipment outright.
What is Equipment Leasing?
Equipment leasing involves renting equipment for a fee. It’s a form of extended rental agreement where the equipment may be used and operated by the lessee from the lessor for periodic payments.
When the lease agreement ends, the business owner may continue to lease the equipment and continue to make payments, upgrade the existing equipment for new technology or return the equipment. This is dependent on the agreement in place between the lessor and lessee.
Advantages of Equipment Leasing
For a business owner, there are benefits to leasing equipment. While there are various types of equipment leasing, it can enable a business to have the newest and latest equipment without spending huge amounts of capital.
Almost anything can be leased
There is a lot of equipment that can be leased for business owners. Almost any item can be leased, which comes as a shock to business owners. The IT equipment used in an office to the weights and exercise bikes used in a gym can all be leased.
The equipment can be costly to a business so the option to lease equipment can help businesses with accessing items that would otherwise put a dent on a business’ balance sheet.
Business has instant access to equipment
Purchasing new equipment can come at a huge expense for a business. As a business owner, you may have to increase revenue and profit to buy new equipment or cut investment in other areas of the business.
The benefits of leasing equipment for your business is it can be delivered and ready to use in a matter of days, which can be an advantage for a business to access items that would be unaffordable or put considerable stress on the business’ cash flow.
Equipment is easy to upgrade for the business
For business owners, equipment leasing can be an easy way of upgrading items. There are various options available for businesses to be able to lease their equipment over a set period of time.
That may include returning the equipment back once the lease agreement has ended, purchasing the equipment outright from the lessor or upgrading the item to the latest version.
Equipment leasing is perfect for growing and established businesses
Businesses of all sizes who use equipment leasing can be beneficial as it can enable business owners to access the items they need.
It’s worth mentioning that the business needs to be VAT registered and new businesses will need to provide a lender with a credible personal guarantee. Overtime, when the business is established, the business owner can take ownership of those assets they’ve leased.
Disadvantages of Equipment Leasing
While there are many advantages of equipment leasing for a business owner, there are disadvantages to leasing equipment. The ease of upgrading items through equipment leasing may be convenient, although for business owners, leasing equipment comes with some issues.
The equipment is not owned by the business
Owning your own equipment comes with some advantages, which includes tax savings. The disadvantage of equipment leasing vs buying is that the business owner does not have the same advantages with leasing equipment compared with equipment that is owned by the business.
For a business owner who uses equipment leasing, the items you lease from the lessor are not in your hands.
Interest is being paid by the business
Another disadvantage of equipment leasing is the business owner is paying interest to lease the equipment for their business. The financing costs for leasing equipment vary as it is dependent on the business’ current financial situation.
Buying the equipment outright means the business can abstain from paying interest but that comes with an interruption to the business owner’s income. For a business, it could be an affordable option for paying interest but that’s dependent on the financial health of the business.
Accessibility of equipment leasing is restricted for new businesses
New business owners who have owned a business for the first two years may find that a disadvantage of leasing equipment is that this kind of lease can cause problems for a new business and it’s also reliant on your credit history.
Limited range of products to lease
A well-known disadvantage of equipment leasing is the item you need to lease for your business may not be available with the leasing company. This may make it difficult for the owner to upgrade to the latest and newest equipment.
For example, if an IT company cannot obtain new laptop models from the company they intended to lease from the leasing company, they will have to make do with a product that is similar or close to the model and brand they intended to lease from.
As a business owner, if you find yourself needing to end the contract with the lessor over the equipment you’ve leased over the lease period, then the business may find themselves hit with a penalty for ending the equipment leasing contract.
For the lessee leasing the equipment, this is one of the most common disadvantages of equipment leasing for a business owner.
Equipment leasing can be a great way for businesses to be able to access the latest items while diverting capital to other areas in the business.
White Oak has asset finance solutions that are tailored to you. If you are a business owner who wants to have access to the latest equipment without incurring huge costs to your business, then, have a look at our asset finance products and speak to our team of experts.