Equipment Leases

[BALLPARK]

I'm very happy with our lease ($1 buy-out option at the end) and our accountant made a great case of using it vs buying.

We now have more operating capital each month as we did not have to max out our accounts to purchase the equipment.

We get tax breaks on it every year of the lease.

We have an interest rate very similar to our local banks. But it's fully in the company's name, thus no credit report on the owner's personal financial records. The lease also covers our local taxes on the equipment which is nice not having to do each year.

We just met with our accountant again about using our bank or the lease company again. He reviewed the rates from our three banks and compared to the lease rate. He once again says... lease it and trust me. I trust him and hope to pull the trigger on a used Zund in the next 30 days.

100% + financing... This can be helpful as banks normally want about 20% down for large ticket purchases. Our bank wanted 10k down which was reasonable, but we only had to fork about a 1/3 of it to start our lease.

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If the rates are similar from a bank and the lease... why put your personal financial ratings at risk? We don't pay the lease company a lot more a month and our credit scores stay high after we just got a Vutek printer. We like building credit for our company while keeping our personal funds (may need to take large loans in the future) clear to make a move, if needed.

I'm sure there are some bad companies out there on leasing programs. Just cross-reference the rates and options... then decide what works best for you.

We use Geneva Capital, LLC (www.gogc.com) now and will use them again for our future leases.

Hope this helps...

 

[T_K]

Mosh, I don't think you fully understand the subject. And this coming from a 38 year old with zero debt (including a home, sailboat and business owned) I totally get not wanting debt of any kind, but if you can buy a car (or equipment) at a lower interest rate than you have your money earning in safer investments, then it makes sense (and money) to borrow. Although this is on paper. I myself have the money before I buy it, although I'm aware this is sometimes financilaly irresponsible, I, like you, just am wired to not like having debt. Period.

This model works as well as nothing goes wrong. The classic case is leasing a car. As long as there are no major problems with the car and you don't get in a wreck, you can take your cash on hand and theoretically make money off it, even if it's just in a low-interest savings account. But if anything goes wrong, like that idiot who runs the red light and hits you, you're still on the hook for the lease. You've paid for insurance, which goes to the lease. And now you've got to buy or lease another vehicle, having lost that money on the original.

I agree, on paper, the low interest rates make it tempting to keep as much cash on hand as possible. But you've got to bet that nothing's going to go wrong, or have enough extra cash on hand in an emergency fund to cover things going horribly wrong.

 

[toucan_graphics]

lease=rent so stop sugarcoating it. no way you perople can get around it. Ok rent your equipment, not many renters getting ahead in life are there? go ahead rent your equipment and see how that works out. no way you can spin paying outright is better that renting. period... good luck with paying rent, just save up and buy, then on those lean months that rent bill will not be there. what happens on those bad months when you do not have the payment? i am serious, just being honest here. sorry for the rant, just roll through any trailerpark and see what renting gets you!

I don't think you have any idea how business leasing works. lease DOES NOT equal "rent".
Renting (like renting an apartment or house or trailer for example) means you pay for the opportunity to use the property and there is no expectation of ownership of the property. Nobody rents an apartment expecting to be able to own the apartment outright in say 5 years. The landlord will never sell you the deed to the building for $1 after a certain number of payments.

Business leasing, however, DOES offer a reasonable expectation of ownership after a period of time. Most equipment leases offer a $1 buyout option, or for a lower monthly lease payment they might offer a "percentage of fair value" buyout... You pay a fee for the convenience of NOT spending all that money at one time which frees up capital for other expenses and/or investments.

Given your stated views of debt and paying cash for your purchases, I suppose you paid cash for your car as well as your home and don't have a mortgage payment.

 

[equippaint]

If some sort of a financing arrangement is desired either through a traditional bank loan or leasing you really need to analyze the actual costs including tax incentives both ways. Another thing is that a lease is off balance sheet which may not be a big deal unless you have a future large financing need such as buying a property, another business etc than a bunch of bank loans on the BS could have some negative impact either in terms of cost of capital or the ability to get it at all.
I personally hate having any debt and am uncomfortable with it but its kind of silly to use a bunch of your cash, even if you have it, to buy large equipment in my opinion. In a bad streak you can always dip into cash to make the payments but at least you still have the cash. As bad as this sounds, if it really goes south, personally Id rather have my cash and walk than to have a bunch of used machines and a paltry bank account - especially printers. Many think that by having no debt youre limiting your risk but in actuality using debt is limiting your risk because the actual risk is losing earned money.
As far as renting goes, leasing is not the same. But renting makes alot of sense too, it leaves you very flexible and reduces exposure to breakdowns. Its very popular in construction and is said in Europe 80% of contractors equipment is rented. Why own a 40', 60' 120' boomlift? Rent it as the job demands then you are not limited to what you can do. If you are completely against renting, what happens when the 1 40' boom lift you own is tied up on a job and need another for a month? Go buy one to use for a month? The job wont absorb $70k so it makes no sense. Now if you can utilize it say 50% or more of the time then maybe buying it makes sense but you still have to move it, insure it and fix it. I also believe you shouldnt charge less for use of equipment you own than what it costs to rent either and as long as you do that youre safe either way. If it costs 800 to rent a boom to replace your sign face and I have my own Im still going to charge you 800 to "rent" mine plus the job

 

[TimToad]

Hope a lease works for ya....I like not having a "payment monkey" on my back every month. I bet you also have a car payment too....LOL! Couch payment? The reason the economy is in the shape it is, too many peolpe doing spending money they don't have....If you had the money for it, there is no way you would even consider a lease? Right?

Actually, the economy is in the shape its in for a number of very complex reasons, least of which is people utilizing credit to attain things with.

If everyone waited until they had 100% of the cash or receivables to upgrade a piece of equipment, it would never happen.

We all go about things in the way we feel most comfortable and our resources allow.

How big is your operation? How many employees do you have? How big is your market? How much competition do you have to keep up with?

 

[HDvinyl]

Poor Mosh, getting bashed and he doesn't even know it.

 

[Eduardo Castro]

So I have $10 and I want to buy a $10 printer or lease one. I lease, and it cost me $12, so I use $10 over the period of the fleece, and then have to come up with another $1 interest, then at the end of the lease give it back, or give them another dollar? This IS how it works!!!

Why not just pay the $10 and own it and not worry about it? Your logic is to pay $12 to keep it? Right? For a $10 printer!

No wonder the economy is f'd up, people thinking this is OK!!!! Do you cash you checks at the paycheck advance stores too???? Rent Couches and TV's???

Well, I think it is not as simple as that. I think of these variables when I'm going to rent, lease of buy something: tax, cashflow, opportunity cost and how much time I am going to spend working with the machine. Also, if you want to stay competitive, I believe having upgraded equipment is a plus for your business, and the lease gives you that.