As your home business gets off the ground, how do you stretch your much-needed cash to equip your new business? A new business will most likely need all the operating capital it can hold on. Therefore, it is necessary that all options must be considered before any investment on capital draining equipment should be made.
Leasing becomes a very important option during your initial operation. Although leasing will actually cost more money in the long run, it allows you to acquire the equipment you need without a large capital outlay. By leasing, you can have extra money that you can use for other activities such as product development, advertising and promotion and other marketing expenditures.
Buying a car or a service vehicle, for example, is one of the cash-draining investments for the start-up home-based entrepreneur. Most people prefer to own equity on the property but would also prefer to pay a lower monthly payment. Unfortunately, it doesn’t work that way. If you want to strike a balance between cost and ownership, you should consider the option of leasing your vehicle.
You should always investigate the advantages of leasing against purchasing. By leasing, you can obtain the needed equipment or vehicle without a big capital outlay. There are lenders who offer longer term with lower monthly payments compared to that if you purchased the equipment or vehicle through a loan.
Unlike loans for purchase, which usually require large down payments, leasing sometimes offer 100 percent financing. If you have a good credit record, you can even get a vehicle with no down payment. This is the point where you save your cash for something else while you drive your new vehicle out of the dealership. However, in the long run, leasing will cost you more, although it can help you out effectively during your start-up period.
Advantages and Disadvantages of Leasing:
Here are advantages and disadvantages of leasing. Perhaps, it can help you in making the right decision when you want to buy your service vehicle.
Advantages of Leasing:
- Minimal cash outlay – You can acquire your vehicle with 100% per cent financing.
- No obsolescence – You can negotiate for a short-term lease and change the vehicle with a new model at the end of the lease contract.
- Tax advantage – (Check with your accountant). If specifically used for the business, you can claim mileage deductions from your income tax.
- Flexibility -You can spread the lease over longer periods than a loan, thus reducing the monthly payments.
Disadvantages of Leasing:
- No ownership: The lessor owns the vehicle. You have no equity to it, unless the contract has an option to purchase clause.
- Higher cost – Even if the monthly payments are lower, the ultimate cost of the vehicle will be higher than if you purchased it.
- Non-cancelable lease contract – Some leases have non-cancelable clauses and charge severe penalties for early termination.
- High Insurance Coverage requirements – some lessor require very high insurance coverage like $300,000/$100,000 coverage and you pay the premiums as compared to purchase where you can decide the amount of your coverage.
Recommended Books on Equipment Leasing:
- The Complete Equipment-Leasing Handbook: A Deal Maker’s Guide with Forms, Checklists, and Worksheets
- Lease or Buy?: Principles for Sound Decision Making (Financial Management Association Survey & Synthesis Series)
- Sales and Leases of Goods in a Nutshell (Nutshell Series)
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Category: Business Management