A look at equipment leasing pros and cons for manufacturing
Just as with leasing a car, there are pros and cons for leasing equipment in manufacturing.To do so is certainly not in everyone's best interest but for those who find themselves in certain situations it could make a world of difference as far as the prosperity of their business is concerned. Also keep in mind that renting may also be an option for getting the equipment that you need if leasing is not an option that is available to you.Below you will find a brief look at the advantages and disadvantages of equipment leasing for manufacturing so that you can make the equipment decisions that are best for your operations.
The pros of leasing or renting equipment:
- There are definite advantages to getting the equipment that you need without having to pay the full cost of the product up-front.Borrowing money or using what could be limited amounts of liquid assets could mean a lot of trouble for your company if making those payments or needing to use liquid assets ever became an immediate concern.
- - When you pay for equipment over a period of time and with a fixed interest rate, your company can better forecast your cash flow needs.This means fewer unexpected expenditures and a more control over your ability to match equipment payments with your monthly income.
- - Businesses can usually deduct the full cost of lease rentals from taxable income.On "long fund leases" you can also claim capital allowances on the cost of the asset.
- - In some leasing contracts that leasing company will accept responsibility for the maintenance of the equipment being leased, saving you money if that equipment were ever to break down.The leasing company will also usually get better deals on replacement parts and labor in the event that you do have to pay for a repair.
The cons of leasing or renting equipment:
- There are tax disadvantages to not actually owning the assets in your possession.For example, you can't claim capital allowances on the leased assets if the lease period is for less than five (and in some cases 7) years.
- - When you lease an asset you do not own it.There will be situations when you will be offered the option of buying the equipment at the end of the lease agreement but this option is not necessarily a guarantee. Not owning your equipment puts you at the mercy of the leasing agency if for any reason they need repossess the equipment that is being leased out.
- - When taking out a lease you may have to put down a deposit or make some payments in advance. There is also the possibility that only certain pieces of equipment may be leased while others can only be purchased (it is usually the newest models available for lease and the older models that are only available for purchase).This situation could turn out to be more expensive than if you were to buy the assets outright.
- - With a lease or rental agreement your business can be locked into inflexible or long-term agreements, which may be difficult to terminate. Also some leases are based on variable interest rates.This means that your monthly payments may increase after a while.All of these factors can easily contribute to the argument that leasing agreements can be more complex to manage than simply buying at the onset.
It is important that as managers you carefully weigh these pros and cons of leasing manufacturing equipment before making a final decision.It is also important to work with leasing agencies that you can trust will be honest and straightforward with you when it comes to the terms and agreements of the lease that you are considering.Having the right information and asking the right questions are important as you look at the equipment leasing pros and cons for your manufacturing plant.