Why Manufacturers Prefer Equipment Leasing
The key to successful manufacturing is having the right equipment for production, maintenance, or assembly, but in the case of a cash crunch, replacing or upgrading equipment may be a problem. If your finances are too tight to allow for outright purchases of equipment, you should consider leasing the equipment instead. Equipment leasing not only allows you to get the equipment you need without straining your bottom line, but it has other benefits as well.
Cash concerns are on the top of the list for just about any business. Leasing is less expensive than outright purchasing because you do not need to put down a large down payment. This also helps if you do have the money for purchases but need that cash for other purposes. Equipment leasing will keep that cash free for business expenses or expansions that otherwise would have to go to buying equipment. You can also work out a payment schedule with your lessor that is friendly to your budget and equipment needs. This will allow you to balance leasing payments along with other expenses.
Also, depending on what you manufacture, equipment turnover may be a more important factor because technical advances are periodically producing new equipment. Buying equipment may end up sticking you with obsolete equipment that you’ll have to sell eventually, perhaps at a discount if it is possible to sell it at all. Equipment leasing can keep you on the leading edge of technological advances. When your leases on existing equipment expire, you can turn the equipment back in and lease the more advanced versions. Also, there are many equipment lessors that permit trade-ins of your old equipment, which makes it easier to clean out obsolete machinery.
Equipment leasing can also make your balance sheet look better. Lease payments are viewed as business expenses, not liabilities or debts. A manufacturer with little debt on the balance sheet will look very attractive if there’s a need for financial capital or loans. Furthermore, leasing can qualify you for tax credits. You can deduct your leasing payments as business expenses by using Section 179 Qualified Financing, though this will depend on your lease. Many businesses use Section 179 as a financial option, even though the deduction limit has been recently dropped to $25,000.
Manufacturers need to stay on top of the latest technological advances in a changing world. By leasing equipment instead of making purchases, they’ll be able to do just that as well as maintaining capital to finance other business operations.