As the owner of a small business, you know how hard working capital can be to come by. However, you will need to equip your company with the right tools to not only get your business off the ground but to maintain a competitive edge in the marketplace. Often, a small company will not have access to the necessary working capital to make these big purchases. This can put you in a Catch-22: you need to have the equipment to make money, but you can’t buy the equipment until you’ve made enough money. What’s a small-business owner to do?
Leasing the equipment provides one of the best options for a small-business owner to acquire the necessary machinery without breaking the bank. While leasing equipment does not automatically refresh the coffers, it alleviates the company’s burn rate. This means the business stays open longer, which increases the potential for making a profit.
There are many benefits for a company to finance or lease equipment instead of buying it. For businesses that rely on bleeding-edge technology, such as computers or communication equipment, having access to the most current technological iteration ensures your business stays competitive and ahead of the curve.
Here are four tips for getting the most value out of your equipment leasing needs:
- Audit your current equipment
Go through all the equipment you currently have and make note of which is out of date and needs to be replaced. Be sure to take any anticipated growth into account when auditing your equipment; if you plan to expand any time soon, you’ll need to be sure you have the necessary equipment to do so.
- Prepare your financial information
Review your business plan, any credit lines and other financial information to ensure you have the available funds and means to cover the leasing costs. If possible, contact your financial adviser to get another opinion on the matter.
- Understand the terms
- The lease term is the length of time you are required to pay for the equipment. The length of the lease term determines the monthly payment options, with the longer the lease the lower the monthly payments.
- An upfront payment is the amount of money you initially put down to cover the lease. Generally the higher the upfront payment, the lower the monthly payments.
- Return rights are the conditions under which you are allowed to return the equipment before the lease term ends if problems arise.
- Early termination gives you the right to terminate the lease early. This is a tough amendment to add to a lease agreement, but if you can, consider getting a rider attached that gives you the option to negotiate for early termination.
- Option to purchase includes the right to buy the equipment. Not all lessors provide this choice, but some provide the option to purchase the equipment at the end of the lease term.
- Sync up the warranty
Check out the equipment warranty to ensure that not only is the equipment covered when you lease it, but that it is covered for the entire duration of the lease. If the warranty expires halfway through your lease term, consider negotiating with the vendor to get a different piece of equipment that’s covered. The last thing you want is to have the equipment break or malfunction and not have the warranty cover it, which means you’ll have to continue making lease payments on a non-operational piece of equipment.