A lease is a form of borrowing that usually has a higher interest rate than an equipment loan from your bank. Therefore it is important to complete the math before moving forward. However, there are benefits to leasing equipment. Those who know how to strategically use leasing can enhance financial performance and capital.
An operating lease is an overhead expense that is tax deductible and may provide a larger tax break than depreciation of purchased equipment. In addition, these leases aren’t reported as long-term debt which allows you to maintain the favorable debt-to-equity ratio required by banks when you need financing.
Because you only pay for the time you use equipment and don’t make a down payment, you can improve cash flow. Leasing can also be an affordable way to maintain state-of-the-art equipment by allowing you to refresh equipment at the end of the lease term. As with any major business decision, always consult your financial and tax advisor.
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