It used to be that if your business needed anything – cars, equipment, an office space, furniture, etc. – that it had to reach deep within its own coffers to produce the purchase price. It is a business model that works relatively smoothly for giant corporations, whose deep pockets and access to unlimited credit allow them to cover the costs, but for small businesses that may not have the extra cash lying around, it’s no good.
That’s why, more and more recently, businesses are starting to lease. Acquiring cars and equipment by lease, rather than purchase, is a business trend that has spiked in the last few years, and similar upticks can be seen in furniture leasing, computer leasing and the leasing of other small operational items.
For a number of reasons, which this article will detail below, custom leasing options for your fleet or equipment are a godsend to small businesses. Let’s take a closer look.
Improving Cash Flow
Rather than having to produce a large sum of money upfront, which can throttle your business’ cash flow and cause operational disruptions, leasing allows you to get the car or piece of equipment you need without a down payment. Further, you are usually only responsible for a small monthly payment. With cars, for instance, a monthly lease payment is usually less than that of a tradition financing payment.
While you may not own the vehicle in a legal sense, you use a leased vehicle the exact same way, only paying less per month and without an initial investment. It’s an easy win-win for small businesses.
Another reason small businesses have turned to leasing is that it allows them to stay current in their fleet and equipment. Leases generally last between 2-4 years; compare that with a vehicle purchase, which tends to last over eight years, sometimes longer. When a business moves from lease to lease every couple years, their fleet remains current, which reflects favourably on the business’ image.
Retaining a Support System
When you lease a fleet or piece of equipment, you generally have some guarantee of maintenance and support. For instance, if you leased your company’s computers through a computer company, chances are the agreement includes tech support. If you purchase them, however, it’s often incumbent on your business to supply the support it needs.
Unlocking Tax Advantages
Oftentimes, leasing entitles businesses to better tax advantages than purchasing. In the case of a company vehicle, the extent to which the vehicle is used for business is deductible (i.e. if it was used 60% for business and cost an annual $10,000, then the business can deduct $6,000). Business expense deductions can be a life raft in hard times, so it’s no wonder why leasing is gaining popularity.
Whether or not leasing is right for your small business is ultimately up to you. But these are the compelling reasons why so many small businesses are ditching their purchase option and opting for a monthly, low-cost alternative to their fleet and equipment needs.