With constant advancements in the field of computers, one of the effective measures to avoid obsolescence is equipment leasing. Both the software and hardware markets are constantly buzzing with new technologies every now and then, which can make the earlier equipment outdated. Generally, they tend to become obsolete in 3 to 4 years, leaving no option but to replace in order to sustain and grow the business. To tackle this chronic hassle of updating, most of the organizations opt for leasing, which offers a very attractive means of cutting down on expenses. It is a common practice among businesses in the U.S. In a company, approximately 40 percent of the equipment is leased out and about 80 percent of businesses lease some or the other of their equipment.
The prime motive of any business is to earn profit and the businessmen always aim to maximize it. Today, in every company, whether small or large, computers are required in order to maintain data, monitor the process flow and to do various other tasks. It is almost impossible to run a successful business without the help of these systems. With the arrival of a more sophisticated technology, a change in infrastructure of computer network and peripherals become necessary.
If an organization decides to replace their existing technology with the new one, leasing is a better option than buying. It does not tie up one's personal or business credit, the way purchase does. The organization may lease equipment like PCs, software, peripherals, network hardware, backup systems, copiers, etc., for a given time period. By the end of this period, it can decide whether to purchase or replace it with a newer technology. The basic steps to be followed in this process are as follows:
- Select the equipment(s) required, considering the need for current technologies.
- Gather the key information of the company or individual, which will be required at the time of application.
- Apply and choose a term and the best-suited buyout option.
Leasing also helps to obtain equipment which are otherwise expensive. For example, an organization might be trying to obtain a highly specialized and expensive equipment for some sophisticated job. It is possible that the assets or the expenditure plan may not allow it to come up with the purchase money or credit line. But with some effort, it can qualify for a lease payment. There is always a possibility that the lease value is higher if the equipment to be leased depreciates in value quickly, but this higher payment is counterbalanced by the fact that the company or an individual is not tying up the credit. When the payment and lease period is over, one doesn't get stuck up with an outdated technology and can always go for something which is more advanced and useful. It is a better option, as it gives an advantage of a lower interest rate, and a faster approval speed as compared to latter.
By leasing equipment, there is also an advantage of tax savings for an organization as the monthly payments are typically considered as operating expenses. Leasing, thus adds a tax incentive as provided by the Section 179 deductions, keeping equipment up-to-date with the market and official requirements.
These exemptions are very lucrative at times and motivate the organizations to lease the required equipment. Sales-leaseback is one of the very popular forms of equipment lease and it helps companies raise cash for investments or for any day-to-day purposes. This allows the companies to lease back the equipment which it has already purchased, making the depreciated value of equipment fall on the leasing company instead.
There is also an option of purchasing the equipment at a fair market value when the lease period is over. This serves a purpose for heavy machineries which don't get outdated over a long period of time, and if necessary, it can always be replaced by a newer leased equipment.