To Lease, or Not To Lease?

For most business owners and their financial officers, leasing versus buying the big ticket items required for day to day operations i.e. Equipment, Real Estate or Transportation related, has always been a topic of much debate.

Simply put, the common rule to follow should always be; when any item you need to generate revenue for your business has the ability to continuously appreciate in value (regardless of the economic conditions at the time), definitely purchase rather than lease.


And, by this common rule, many think that Real Estate is a sure buy.

However, if your business is just starting out or at a critical stage of its development, despite what your R/E agent may suggest, the ownership approach should be put on the back burner for a while. The strategy (rather mandate) should be to conserve cash and focus all efforts on creating strong, stable growth for achieving true business success.

Vital expansion needs and the ability to remain flexible for exiting at the same time is why early ownership of your business workspace doesn’t make sense. Although, it certainly would if there’s oodles of surplus cash to comfortably dole out a sizeable down payment (30 to 35%) and the business is consistently generating positive revenues to support paying the mortgage payments and all operating costs, including without limitation; property and income taxes, maintenance, insurance, utilities and a monthly budget of about 10% of the total monthly costs for applying to unforeseen issues. Not something most business owners can expect to accomplish during weak economic teams. Nor should they try!


Using your Equipment is what makes you money, not owning it!

Since your business equipment depreciates in value from the first moment you put it to work, there’s no justification whatsoever to own it. Essentially, wear and tear and technology obsolescence are the key reasons. From computers to cooking ranges, furniture to forklifts, vehicles to voice mail systems…you name it, 98% of the time, the value of your business equipment plunges by 25 to 30% within the first year to 18months. This is precisely why equipment and transportation leasing has become the most favored approach.

Almost 85% of all SME’s to "Fortune 100" companies lease some or all of their equipment. And why not; when monthly lease payments can be tuned with projected revenues, tightening budget constraints, and there’s no up front tax to pay. No need to increase bank borrowing capacity either. And, many equipment and vehicle leases can be structured with no money down, even with declining monthly payments as the goods devalue. And, the ability to qualify for funding relative to getting a loan is a very quick and painless process. As well, it’s much easier to get out of an equipment or transportation lease by transferring it to someone looking for the same items under a shortened term which saves them serious money.

In summary; To Lease or not to Lease is not the question....it should be, What’s your best Lease rate and terms?



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