One of the main reasons people are in business is to gain or maintain financial or economic vitality. The best way to do this very thing is to properly leverage yourself, especially when acquiring new equipment. This is particularly true when making a larger purchase. Examples of larger purchases would include computer equipment, construction equipment, yellow iron, specialty trucks, manufacturing equipment, printing equipment, medical equipment, etc. These sort of things can run $15,000 to $20,000 on the low end of the spectrum and on the higher end can cost hundreds of thousands and even millions depending on what you are buying.
Let's look at an example in the construction field. Your business is booming and you need to get your hands on a new bulldozer. Let's just say this is going to run you about $90,000 or so. You look at a traditional bank loan, it's feasible but they want 25% down. That's a hefty chunk of change at $22,500. Even if you have the cash to the tune of about $30,000 to $35,000, you'd only be left with $7,500 to $12,500. That's not much cash on hand to cover all your other business expenses like payroll, insurance, the cost of running your equipment, etc. How long does it take you to get paid on your invoices? Often times it takes 60, 90, or 120 days to get paid-right? When you consider this, leaving yourself with only $7,500 to $12,500 in working capital can prove to be quite stressful and burdensome. One way to economic vitality is to leverage your business by leasing your business equipment.
Leasing your equipment can be much simpler than your run of the mill bank loan. Often times only a simple application is required (up to $250,000). What do you need at the bank for this type of loan-tax returns, financials, a blanket lien, and sometimes they are finicky about your time in business and previous credit issues? When you lease equipment it can often be done with nothing down or just 1 or 2 payments up front. This will leave you with a lot more working capital so that you can use your cash for items that may not be able to be financed. Leasing also yields better tax advantages and that is why Fortune 500 companies lease their high ticket equipment. Leasing can also be done for those that have low credit scores (under 500 is possible).
Another reason to leverage your business through leasing is that there are no financial covenants required with a lease and there typically are with a loan. Adhering to your financial covenants can be a tedious and time consuming task.
As a business owner, you need to do what you do best-running the show and getting new business. Why bother with chasing down endless piles of paperwork for a bank loan when you can lease the larger ticket items you need to acquire? Why bother depleting your cash reserves when you can lease your equipment and also take advantage of the tax advantages associated with leasing? Opt for economic vitality and leverage your business by leasing your business equipment.
