Leasing as a Small Business

Companies and employees can only do so much without equipment. Whether it be computers, heavy machinery, or even just a company car, a business needs equipment to get things done. However, outfitting your small business with expensive machines or electronics won’t be cheap, and as a new business, you could struggle to get outside funding, like a line of credit. An alternative is to lease your equipment so that you don’t have to spend a large amount of capital and require outside financing.

small business lease is used to finance the purchase of equipment and vehicles, and generally, businesses can lease any vehicles or equipment that will be used to increase operating efficiency or to generate revenue. There are of course pros and cons to leasing equipment, and you should have a lawyer look over any lease agreements before you sign them.Tweet This

Pros of a Small Business Lease

There are a few advantages if you decide to lease instead of purchase outright:

  • Leasing helps you keep up with new technology. You can try out new equipment and tools without having to purchase for good.
  • With a short-term lease, you have the opportunity to try the equipment out and see if it works for you. From there you could extend your lease, invest in the equipment or try a different product.
  • You may be able to have maintenance done on your equipment for no extra cost, if service was included in the lease, which could save you money.
  • If the leased equipment is vital to your business, you may be able to deduct the cost on your taxes.

At this point you may be thinking, why would I not lease my equipment? Well, there are a few cons to leasing over buying.

Cons of a Small Business Lease

  • As a startup or small business that has not yet established strong business credit, you may need to use your personal credit to secure the lease. It can be risky to intertwine your personal and business credit in this way, so you may want to consider building your business credit first so you can help protect your personal assets.
  • You may end up paying more in the long term to lease equipment over buying it. If you think you may use the equipment for an extended period of time, try to negotiate your contract to allow for what you pay while leasing to go toward the overall purchasing cost of the equipment.
  • A lease can tie you down to a piece of equipment for a certain amount of time, meaning if something new and better comes along, you’ll likely have to wait until your lease is up to try it out.

How to Build Business Credit to Help Get a Lease

If you don’t want to use your personal credit to lease equipment, or were told that your business credit wasn’t strong enough, then you may want to start building up your Dun & Bradstreet business credit file. In addition to separating your business from your personal credit and assets, business credit may help you get a loan or line of credit, win more contract bids, manage risk and cash flow, and much more.

Business credit starts with a D&B D-U-N-S® Number, which is free but can take up to 30 business days to receive, so apply for one now before you really need it. Once you have a D-U-N-S Number a D&B profile will be started for your company which potential partners, lenders and suppliers, can view to help assess the creditworthiness of your business. By building and monitoring your profile, you can help make sure the information in your D&B profile is correct and that Dun & Bradstreet as enough information about your company to provide scores and ratings for your business. Once you’ve established a strong business credit profile, the possibilities are endless.

Finding Funding to Lease or Buy Equipment

If you decide to lease or buy equipment but need funding for either option, you have a variety of choices.

  1. You could seek a traditional loan from a bank, where your business credit will definitely come in handy, OR
  2. You could use an alternative lender who may have less strict criteria for a small business.You could also:
    • Opt for a line of credit
    • Use a business credit card, or
    • Try to crowdfund your expense

No matter what you choose, it will still be a good idea to build and monitor your business credit, because whoever loans you the money is going to want to know you’ll pay them back. Learn more about business credit and what it can do for your company.

Photo Credit: PhotographingTheWorld, Twenty20