Top reasons to opt for equipment leasing instead of buying
To lease or to buy, that is the question. At least, that is a key question for businesses looking to invest in their future but unsure on how to approach the financials.
Whether you are a construction company looking for equipment for your next project, or are a food and beverage business considering an equipment upgrade, buying outright can be a daunting undertaking. However, investing in the future of your business does not have to take away from your present financial capabilities.
Lease financing is an alternative option that helps businesses find the capital they need to put their company on a path for growth without hamstringing their cash flow in the short-term. In fact, there are several key ways that equipment leasing can be beneficial to your business.
Improving cash flow and buying power
Straight loans require businesses to put the full cost of equipment on the balance sheet, and immediately face the full burden of that debt, explained Lee Bergeron VP, GM Equipment Finance - Global Financial Services at Pitney Bowes.
Using a partner for equipment leasing can allow businesses to make smaller payments over time and free up their cash flow, Bergeron said. Smaller payment increments can also give organizations the ability to invest in more than one piece of equipment at once.
The earlier that businesses can lease equipment, the earlier they can start to spread that cost out over time. This will improve their overall buying power. Additionally, investing in that equipment will ensure that the job is completed now, regardless of the company’s short-term cash flow situation, which opens the door to immediate growth.
Optimizing your opportunity cost
There is also the opportunity cost to consider.
“What else could I have done with that money?” Bergeron said. “Could I update my trucking fleet? Build another plant? Buy adjacent property?”
Simply put, companies have more options available to grow when they are not paying as much money upfront on expensive equipment. For example, if a business needed three pieces of equipment, it could acquire those pieces more quickly and cheaper through financing than if it wrote a check outright.
“The big question is: do I deploy my capital?” Bergeron said. “I have equity in my business. Do I take that cash and buy a piece of equipment and take the hit on day one, or do I lease that piece and time the monthly payments to my cashflows?”
Reaping numerous investment benefits
Equipment leasing can also give business owners a leg up on competitors in a few ways.
For instance, the money saved by leasing could allow a business to invest in other areas, such as hiring additional employees.
This can put businesses ahead of competitors that might not have the same financial flexibility.
Leasing also allows businesses to acquire newer equipment, faster, without having to worry about taking a large, short-term hit to their bottom line. That allows companies to benefit from the latest and greatest at the speed at which technology evolves. Newer equipment often means improved efficiency and productivity, which leads to higher profitability.
Still, some businesses may be on the fence when it comes to equipment financing, Bergeron acknowledged. Perhaps they don’t want anyone “looking over their shoulder” for money. That line of thinking, however, doesn’t account for the sound fiscal advice a business can receive from an equipment leasing partner that has years of experience helping businesses accelerate their growth.
“You can’t grow as fast if you’re paying cash for everything,” he said. “A little leverage makes a lot of sense. You can grow so much faster, employ more people, and service more clients if you can leverage your business a bit.”
Pitney Bowes has been helping clients gain access to asset-backed financing, commercial lending and payments for decades.