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Equipment leasing is essentially a rental agreement where the lessor buys the equipment and then rents it to the business (lessee) for a fixed payment over a period of time.
The lessor maybe a bank, leasing company or the equipment vendor. In some cases, the agreement may include an option for the company to buy the equipment for a stated price at the end of the lease term.
Leasing equipment allows you to use the equipment without upfront investment, conserving your cash flow for other business needs.
Leasing equipment makes it possible for you to generate revenue to pay for the equipment rather than paying for the equipment upfrontand recovering the investment overtime.
Leasing helps you stay up to date on equipment that is frequently upgraded due to technological changes, such as IT equipment. If you see the need to update equipment frequently, then leasing is the logical choice. Lessors are better equipped to extract value from the equipment, which allows them to offer attractive terms to you for the use of the equipment than purchase.
Since you don’t own the equipment, you have no equity in it. This means you don’t have the option to sell the equipment when you are done with it even if the value of the equipment appreciates.
You are liable for the fixed payments even if the equipment is sitting idle at the warehouse. Lessors generally don’t offer fee per use contracts, so you would need to manage the utilization of the equipment to make the best use of the lease contract.
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