Leasing
A common method of financing starting businesses is to lease property and equipment rather than purchasing it. When you lease, the asset is the property of the lessor and the lessor take title to the lease. The assest is leased or rented to the business. Almost any piece of equipment can be leased through a third party leasing company. Many times, the vendor you are obtaining the equipment from has a leasing partner. This is particularly true with vehicles and office equipment such as copiers.
Leasing can also be attractive because at the end of the lease you simply return the equipment to the lessor. This is particularly advantageous with items such as computer equipment which becomes dated very quickly and loses its value. Also, through leasing, you may be able to obtain maintenance at a reduced rate through the lease.
The structure of the lease is important. With a normal lease, there is a purchase price or initial market value which represents the market value of the equipment There is also a residual value which represents the value of the equipment at the end of the lease. If there is no residual value to the lease, you are essentially financing the equipment and accounting rules may require that the lease be treated as a loan. This may potentially conflict with any other credit agreements that are in place and add debt to your financial statements. You should verify the treatment of a lease with your accountant.
If you have sufficient funding to either purchase or lease equipment, there are calculators that will tell you which option is more cost effective. See www.toolkit.cch.com.
For leasing options, please see contact us at Liquid Capital.