Though rapidly changing technology makes leasing hardware and software an attractive option, is it the right move for your business?
Some leasing decisions are easy: Why buy office or retail space, for example, when you can avoid tying up capital and dealing with maintenance and repairs? But other buy-or-lease decisions are more nuanced–particularly when you’re thinking about leasing your tech essentials.
Once you know the pros and cons of leasing–including what to ask about a specific lease deal–you’ll be in a better position to make a smart time-and money-saving decision.
What draws businesses to leasing?
Businesses that opt for technology leases typically cite these benefits:
- Hold on to capital. Startups lacking a proven revenue stream, or a business outfitting an entire staff at once, can benefit from a lease’s no-cash-outlay condition
- Operate on the cutting edge. A two- or three-year lease can put you at the forefront of technology–and you won’t build a computer museum in the storeroom
- Avoid upkeep burdens. Many leasing firms companies provide maintenance, upgrade and even training services throughout the lease term. Headaches averted
- Stay flexible. Leasing companies can tailor an agreement to your particular business needs–including an ongoing option to add equipment to your current agreement
- Build your credit. Leasing builds a positive credit profile
Consider leasing’s potential downsides.
- You’ll pay more, without gaining equity. Take this example: On a three-year lease on a $4,000 computer, at a standard rate of $40/month per $1,000, you could pay as much as $5,760– or 44% more than if you’d purchased it outright
- You’re committed to the irony of leasing. Though you have the freedom to trade up to a newer version of your equipment at the end of the lease term–the term itself is typically two or three years
- It can get complicated. Leasing comes with opportunity costs. The questions below can help you sort them out
Ask before you sign.
Get answers to these questions before committing to a lease:
- Do you have term-length options? Given the pace of technology advances, shorter terms are more desirable–though you’ll pay more per month for the privilege
- Will you need insurance? Some leasing firms companies require you to insure their property through their firm, adding a fee to your payment
- What kind of lease is it? An operating lease–the more typical kind of lease agreement–is a rental contract. A capital lease finances a purchase over time, and you keep the equipment. Each comes with its unique financial and tax conditions
- Does it have a buyout option? In an open-end lease, you can buy the equipment at a prearranged price upon lease termination. If there’s no buyout option, it’s a closed-end lease
- Is there an early termination penalty? If your business dissolves, or you reduce staff, you may need to terminate your lease. What are the financial consequences?
- What are the current tax implications? Talk with your accountant: Recent and anticipated changes to IRS rules governing lease deductions and depreciation allowances–particularly for operating leases–could negatively impact leasing’s more attractive benefits
The choice is yours.
For some businesses, leasing offers a level of technology access otherwise out of their reach. Before making any lease decision, it’s critical to consult with your accountant and other advisors. You can benefit from their professional knowledge and experience helping businesses just like yours.
Want to learn more?
Your M&T Business Banking relationship manager is a great resource to consider when making key decisions for your organization. Visit a branch or call us at 1-800-724-6070.
This article is for informational purposes only. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. Please consult with the professionals of your choice to discuss your situation.