Lease on equipment

[Sign-Man Signs]

Lease or don't. I don't know. I've leased two pieces of equipment and they both worked out well, interest rate be damned. If you need it and and can make money with it, do it. Yea you pay more but most will last you past the time of lease.
Thing you need to know.
1. You have to insure the equipment and make the lease company the beneficiary. That's going to add about another 20 to 30 dollars a month.

2. State taxes/tangible taxes on the equipment. They'll add that as another add-on to you lease.

3. Buy out. $1.00. Get it in writing. Period.

4. Warranty. Have them add on warranty to the length of the lease.

5. Always take your contract to a attorney for review. Money well spent.

In other words, have them add all the add-ons to the lease. Yup you're going to pay through the nose but better than laying out a bunch of money you don't have right now. Once you get the equipment you have a opportunity to make money with it.
Hope this helps.

 

[ddarlak]

I CAN NOT stress this enough, borrowing money is what has got this country in such a mess!!!

sure, but borrowing smart money can make you money. I borrowed 80k to buy a building that houses my shop and has 5 apartment rentals. At 2.49% i'm paying almost nothing for interest. i no longer pay rent for my shop, saving me 14k, and i collect 30k in apartment/commercial space rent. building is half paid for in 3 years.

if you can make money from borrowed money, it's better than waiting until you have the cash in hand.

 

[royster13]

Comparing consumer credit and business financing is not a fair comparison....If when buying or leasing a piece of equipment there is positive cash flow then it is likely a good use of credit.....There was some discussion in another thread about the right time to acquire a flat bed printer.....Many of the points in that that thread illustrate good use of credit....

One place I think leases are often a poor choice is a larger shop than needed....You have to carry that overhead each month whether or not you make enough money to pay for it....In my mind it would be better to put up with a smaller shop and try to buy it.....Then when time comes to sell your business, you have equity in the building....

 

[Pat Whatley]

I 150% disagree in a world where technology is obsolete in 24-36 months why on earth would you want to buy outright and tie up that capital if you do not have to.

Guess I am ignorant? Maybe a walk out into production to look at our machines and production firepower will make me feel better about our horrible senseless business practices.

There's a world of difference in the economics of what you do and the economics of a one-person shop trying to buy a $15,000 printer.

 

[FireSprint.com]

I'm not really taking sides here, but to say leasing is senseless just isn't true. There are advantages to a lease. Some I can think of are
-tax deductions work differently with a lease
-you don't pay property tax on something you don't own generally
-you can upgrade and get better equipment more often
-leveraging OPM (other people's money) can lead to faster and stronger growth that pays off in the end (this is true with a loan as well).
-you have less liability for the equipment if you don't own it in the event of a catastrophe. Often a lease will require they are put on your insurance for this reason.
-a leased piece of equipment probably wont get repoed if you miss payments on something else.

Of course there are pros and cons to everything, but one cannot say either option doesn't make sense at least some of the time.

 

[Letterbox Mike]

It's all about leveraging your cashflow. Merritt is right IMO. If you can justify the machine (that doesn't mean if you can justify the $500 a month, it means if you have the work to justify adding equipment, anybody can afford $500 a month in theory), a lease is a way to bring that equipment in house without significantly overextending yourself or spreading your cashflow too thin. Yes, a lease costs a lot more in the long run vs. paying cash, but at what price?

If you have the option of leasing something that costs you an extra $5k over 5 years vs. paying $20k cash for it right now, I say lease it and reinvest that $20k in your business. That $5k expense becomes a good way to finance yourself. That $20k goes a long way towards building a better website, optimizing your site for search, hiring a sales person, creating better promotional materials, or just giving yourself a comfortable cashflow cushion.

To me, paying cash for equipment you need and can justify because you don't want to pay the interest on the lease is like jumping over a dollar to save a penny. In the long run holding onto your cash makes more sense.

Now if you have a million bucks in the bank, paying cash for a $20k printer isn't going to spread you too thin, so pay cash. But I suspect that's not the case.

There's NOTHING wrong with borrowing money if it's done responsibly and smartly. But don't buy equipment because you think you should, buy it because you know you need it and know you can justify it.

 

[National Sign Co. - Print]

There's a world of difference in the economics of what you do and the economics of a one-person shop trying to buy a $15,000 printer.

Actually the Economics are identical.

A lease is a Lease and a Loan is a Loan. Paying cash is Paying cash

It is the Economics to scale that may differ.

 

[HulkSmash]

Merritt you are correct sir. However I was responding to OP post NOT a wholesale company as yourself BUT I should have taken that comment a step further and added the exception.

YOU are the exception. a full service compnay wholesaling to others I completely understand

How does the above make any sense. Why is he an exception? Because he sells to other shops? And to note, he's not a wholesale only. They're a national retailer, whom i rather use over most wholesalers.

 

[HulkSmash]

It's all about leveraging your cashflow. Merritt is right IMO. If you can justify the machine (that doesn't mean if you can justify the $500 a month, it means if you have the work to justify adding equipment, anybody can afford $500 a month in theory), a lease is a way to bring that equipment in house without significantly overextending yourself or spreading your cashflow too thin. Yes, a lease costs a lot more in the long run vs. paying cash, but at what price?

If you have the option of leasing something that costs you an extra $5k over 5 years vs. paying $20k cash for it right now, I say lease it and reinvest that $20k in your business. That $5k expense becomes a good way to finance yourself. That $20k goes a long way towards building a better website, optimizing your site for search, hiring a sales person, creating better promotional materials, or just giving yourself a comfortable cashflow cushion.

To me, paying cash for equipment you need and can justify because you don't want to pay the interest on the lease is like jumping over a dollar to save a penny. In the long run holding onto your cash makes more sense.

Now if you have a million bucks in the bank, paying cash for a $20k printer isn't going to spread you too thin, so pay cash. But I suspect that's not the case.

There's NOTHING wrong with borrowing money if it's done responsibly and smartly. But don't buy equipment because you think you should, buy it because you know you need it and know you can justify it.

And, the most important part - Why spend YOUR money when you can spend other peoples money.

 

[cdiesel]

And, the most important part - Why spend YOUR money when you can spend other peoples money.

This only makes sense if overall you don't get raped. Seriously, every situation is different, every lease is different. Talk to YOUR accountant and YOUR lawyer and YOUR situation.

 

[HulkSmash]

This only makes sense if overall you don't get raped. Seriously, every situation is different, every lease is different. Talk to YOUR accountant and YOUR lawyer and YOUR situation.

We're buying a flatbed, and been doing alot of research for leases. With our credit we're able to get about 6-9% which is pretty good. My wife has a masters in finance, and she's a CPA.. she does all my money calculations.. so i'm in good hands

 

[Mosh]

I paid 0% interest paying cash...All I know is I have NO rent, NO equipment payments, NO lease payments, NO car/truck payments, NO farm payments, NO house payments..NO payments AT ALL...well child support. Having NO payments each month frees up so much in your life.

AND yes there are taxes, insurance, electric....but you get the idea.

 

[FireSprint.com]

I paid 0% interest paying cash...All I know is I have NO rent, NO equipment payments, NO lease payments, NO car/truck payments, NO farm payments, NO house payments..NO payments AT ALL...well child support. Having NO payments each month frees up so much in your life.

That's pretty good. You're a 1%er!

Someday I'll follow in the footsteps of Mosh...

 

[MatthewTimothy]

congrats Mosh!! Wish I was in that boat. I'd love to get some new machines but I'm holding back till I can generate some better revenue so my debt to income is low. That is another issue to worry about. How a lease, loan, or the norm will affect your companies debt to income.

 

[SD&F]

We have leased before and all kinds of promises were made. It was not the case. I personally have never heard of a $1 buy-out and I know for a fact that if you don't have it in writing....there is no legal obligation for them to honor the agreement.
GOOD LUCK

 

[signswi]

Smart leveraged debt is what allows for explosive growth and progress. Anyone with half a clue understands this. Apple, Microsoft, Google, Facebook, etc. all built with leveraged debt (most often in the form of venture capital). Same goes for basically every major successful business and country.

What you should do for equipment is far too situational to make blanket statements about.

 

[Baz]

The 10% is normaly on the amount of money that is borrowed and not what the equipment is worth. Say you buy that 15 000 printer. Pay half of it up front, have small lease payments and at the end you pay 10% on 7 500$ that was borrowed. At least that's how it works up here.

And yes leasing can have advantages over buying outright and vice versa.

 

[Billct2]

I've done $1 buyout, regular business loan and cash.
They all worked.

 

[visual800]

I think there is big difference in a one man shop vs a big wholesale company. a one man shop (generally) would not kick out hundreds of prints like the wholesale. One peice of equipment would seem better suited to be bought than leased UNLESS there was a 1 year lease just to see how it would go

 

[Mosh]

You're a 1%er!

I am not in the Hell's Angels...1%ers....what?