Should you lease your manufacturing equipment?
Can you afford to buy all of the expensive manufacturing equipment you need in order to run your company correctly? One option many manufacturing firms are turning to include equipment leasing. Manufacturing equipment leasing provides you with a chance to acquire the manufacturing equipment you need to produce your products and you don't have to take out an expensive loan to do so.
There are a number of pros and cons that you can expect when you are leasing equipment. You need to make sure that the equipment you are leasing is new so you can be sure that you are able to produce only the highest quality product possible.
Be careful of the companies you choose to lease from. Some of the companies do not have the best reputations out there and a number of them will lease used equipment. This leaves you vulnerable to defects when you are producing products as the equipment may have defects and problems. It is vital that you ensure the leasing company will pay for product recalls and other things that arise as a result of their negligence in leasing you used equipment.
There are a lot of advantages to manufacturing equipment leasing as you don't need to come up with the money to pay for the equipment. In addition to lower costs, here are some of the other benefits you will be able to expect when you use manufacturing equipment leasing:
- Greater cash flow returns. Since you aren't taking out a loan, you aren't using money that you need for day-to-day expenses. You actually end up with more money because you can produce better products and more products without the worry of using all of your cash reserves to buy the new equipment.
- Stronger forecasting. When you use manufacturing equipment leasing, you have a chance to actually forecast better numbers. You will be able to predict what your customers need and it will be much easier for you to satisfy these needs. You have more money coming in so you have extra control over your cash flow needs and you can finally predict your monthly income for the business.
- You can deduct the cost of lease rentals on your taxes. This gives you the benefit of using the equipment and getting the tax credit for doing so. You also get to claim the capital allowances on the cost of the asset.
- Leasing manufacturing equipment means you will have the option to buy the equipment when the lease is up. If you like the equipment and you don't feel that you are going to need an upgrade in the near future, some manufacturing lenders will be able to sell you the equipment and credit some of the funds you have paid toward the purchase price.
- Depending upon the lease, you may not be responsible for fixing or maintenance of the equipment.Some leasing companies will come in and service the equipment for you in order to ensure that their investment is working properly and to make sure you are using it correctly.
- Some people prefer to own the equipment as they can claim capital losses or gains on the equipment. Since you don't own the equipment you are not able to claim this.
- The leasing agency has the right to repossess the equipment. This can leave you in a vulnerable state as you cannot afford to buy new equipment and you may be unable to find another leasing company.
- To lease the equipment, you will need to provide a down payment to the leasing company to secure the equipment and you may or may not get this down payment amount back.