What are Equipment Leasing Basics?
Equipment Leasing Basics consists of the process in which a company, instead of buying the equipment needed for its development, prefer to lease equipment from a lessor (the equipment-leasing company) in exchange of some regular payments.
The lessor will provide the necessary equipment and also establish a contract, either short or long-term, with the lessee (the company requesting the equipment leasing). The lessor will have to guaranty regular payments for such services during the duration of the contract. This type of financing allows the small and big companies to reduce the cost of their expenses relative to the purchases of assets. These assets may be vehicles and other machinery that they need for their business. This is the reason why many companies prefer to lease some equipment instead of actually buying them.
The Process of Equipment Leasing Basics:
- The lessee applies for the equipment leasing.
- The lessor will evaluate the request of the lessee, and if accepted, the lessor will establish a contract defining the duration and the cost of such services.
- The lessee will then inform the lessor whether or not he is agreed with the contract terms.
- Once the lessor received the decision of the lessee, he will then proceed with the purchase of the equipment or pay the manufacturer which the lessee is getting the equipment from.
Equipment Leasing Basics (Types):
There are mainly two types of equipment leasing which are defined below:
Operating leasing: This leasing is for a short period of time, the lease can be cancelled by the lessee without a major penalty, and it’s done for small valued equipment. In general it suits best the companies which need to lend materials for a short time.
Long-Term or financial leasing: The financial leasing is a long-term leasing, the lessee cannot cancel this lease, and it’s more appropriate when the companies intend to purchase the equipment or need to use them for a longer period of time. The lessee in that case is responsible for paying the property tax related to such equipment, and also for the maintenance and insurance of the equipment. Financial leasing suits better the companies which intend to use expensive capital equipment.
Pros and cons of Equipment Leasing:
Advantages of equipment leasing:
- First of all, you may have lower monthly payment than for a normal loan.
- In addition, you can save your working capital.
- Plus you can take benefit of the taxes advantages.
- You will have access to the most modern equipment.
- It has some flexible contract terms.
- Convenient for most businesses.
- In the case of operating leasing, the lessee can cancel the lease.
- Most of all, you can get a quick access to the equipment needed.
Disadvantages of equipment leasing:
- It might be more expensive on the long-term basis.
- It can be mandatory to keep an equipment for a certain period of time.
- Limitation of availability of equipment from the teasing company.
- Finally, it can be difficult in some cases to make the payments for the leasing on time.
In Conclusion, Equipment leasing helps small and big companies to reduce their expenses buying equipment by providing them the necessary equipment in return of some regular payments during the leasing period. It can be either on a long or a short-term basis depending on the need of the company and the type of equipment needed. It allows the business to save their capitals by not having to spend a lot of money on acquiring new equipment needed for their daily activities.