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     Should You Lease Or Buy Office Equipment?

Equipment FINANCING in its various forms is a multi-billion dollar industry. And since we live in an age where there are more businesses now -- as well as more businesses being started than at any other point in history -- the equipment finance industry will continue to grow at a fast rate now and into the future.

Just 30 years ago the main type of equipment financing was the "borrowing to buy" method, or DEBT financing. Otherwise, the company had to purchase the equipment outright, which only a few companies could do. The form of equipment financing known as LEASE financing has grown at a very fast rate as well over the past 30 years, and is largely responsible for the overall boom of the equipment finance industry as a whole. When lease financing came along it gave companies more options and FLEXIBILITY in obtaining the business equipment they needed -- particularly small and medium sized companies without large blocks of retained earning that they could use to buy equipment outright. Both forms of equipment financing -- debt and lease -- offer advantages and disadvantages. Thus, a business should look closely at both, their particular situation, and the various options available to them.

With debt financing lenders very often require large DEPOSITS or equity investments that can range from 25% to 50% of the price of the equipment. This is not so with equipment leasing -- where large outlays of capital are not needed. Equipment leasing will allow a company to RETAIN valuable operating capital, which can be used to create more profits -- thereby lowering the overall cost of leasing the equipment.

Another factor in favor of leasing equipment deals with a companies ability to borrow capital, either to take advantage of opportunities or to avoid catastrophe. If a company takes out a loan to buy business equipment, its AVAILABLE lines of credit for other purposes are diminished because the loan is carried on the company's books as a debt. But, with leasing, the equipment is not usually carried on the books as a debt. It is simply listed on the books as a footnote, so a company's ability to borrow capital is not impaired.

One factor in favor of borrowing to buy business equipment concerns equipment OWNERSHIP, and the fact that once the equipment is paid for the company owns the equipment. Equipment that can have many years of useful life left and can continue to produce profits for years to come. It can also have some COLLATERAL value that the company may borrow against in the future. You don't have this with a lease. However, today many lease lenders now offer various lease-purchase options.

Cost is another factor in favor of a company borrowing to buy business equipment, rather than leasing it. It will cost LESS in actual dollars and interest costs to borrow to buy business equipment than it does to lease the same equipment. Yet there are other factors involved with leasing business equipment that can LOWER the overall cost of leasing -- for example, future lease payment will be paid with inflated dollars, so a company's capital will go farther.

And, of course, you need to consider tax issues, equipment DEPRECIATION, your company's financial goals, other obligations, and other places where you might be spending your money (and getting a better return). Therefore, the decision to lease or buy business equipment should be based on the advantages and disadvantages that both offer, and other opportunity COSTS involved. If you need help determining which is the best choice for you, consult with your financial planner or accountant -- he or she should be able to help you weigh the costs versus the benefits.


Berwyn J. Kemp is a financial consultant who helps businesses obtain funding. For full information on his funding products and services. You may contact him at .

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