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Definition of Leasing Services: Obtaining the use of machinery, vehicles or other equipment on a fixed term rental basis, avoiding the need to invest capital in equipment. Ownership rests in the hands of the financial institution or leasing company, while the business has the actual use of it.
One way to keep equipment costs under control is to lease instead of buy. These days, just about anything can be leased -- from computers and software, to heavy machinery, construction equipment and complete offices. The kind of business you're in and the type of equipment you're considering are major factors in determining whether to lease or buy. If you're just starting out and only need one computer, for instance, it probably makes more sense to buy. On the other hand, if you're opening an office that will have several employees and require a dozen computers, you may want to look into leasing.
According to equipment leasing associations, approximately 80 percent of north american companies lease some or all of their equipment, and there are some thousands of equipment-leasing firms across the continent catering to that demand.
Leasing advantages include: making lower monthly payments than you'd have with a loan, getting a fixed financing rate instead of a floating rate, benefiting from tax advantages, conserving working capital and avoiding cash-devouring down payments, and gaining immediate access to the most up-to-date business tools. The equipment also shows up on your income statement as a lease expense rather than a purchase. If you purchase it, your balance sheet becomes less liquid.
Leasing also has its downside, however: You may pay a slightly higher price over the long term (though possibly offset by tax savings). Another drawback is that leasing commits you to retaining a piece of equipment for a certain time period, which could be a problem if your business is subject to volatility.
Every lease decision is unique, so it's important to study the lease agreement carefully. Compare the costs of leasing to the expected rate of return of the equipment, examining the business case to understand if a deal makes sense. What is the lease costing you? What is the expected increase in your revenues? Compare those numbers to the cost of depreciating the same piece of equipment under a finance contract, and you'll quickly see which is the more profitable route.
Because they tend to have little or no credit history, startups often find leasing equipment an ideal way to establish commercial credit and provide initial funding for a venture. LeaseDirect Canada will consider your idea, experience, enthusiasm and personal rather than business credit history during the approval process.
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