Commercial equipment leasing allows businesses to have ownership of an asset, but only for the duration of the lease. Just like you do with auto insurance, you’ll only pay for the right to use the asset you don’t own. Commercial equipment leasing gives ownership to the lessor, but he or she has to pay for that service.
The importance of Commercial Equipment Financing is the flexibility that it offers to the company since it does not restrict its possibilities of taking an immediate change of plans or not taking planned industrial action to take advantage of a good opportunity or adjust to the changes that occur in the midst of the operation.
The leasing of business equipment is ideal for financing in parts, which allows the company to resort to this route to acquire smaller assets. Additionally, lease payments are tax deductible as operating expenses, so the company has a larger tax deduction when taking out the lease. For marginal companies, commercial equipment leases are the only way to finance asset acquisition.
The risk is reduced because the property is leased and can be ready to operate when other creditors were unwilling to finance the venture. This greatly facilitates the reorganization of the company.
Some of the advantages of commercial equipment leasing are:
The fact that it is more flexible and often maintenance costs are included. Since the company doesn’t own the equipment, you don’t have to worry about it becoming obsolete. It is attractive to small businesses that are at risk of going out of business.
Disadvantages of commercial equipment leasing
The price you pay for commercial equipment leasing is not having ownership of the equipment at the end of the lease. That’s a high price to pay, especially when you also include high interest rates.
Commercial equipment leasing is almost similar to paying off a short-term loan without gaining ownership of the asset in the end. The payments are all equal and spread over the same amount of the asset’s assessed value over its estimated life. The company cannot sell the good at the end of the contract because it is taken away.
Some commercial equipment leases cannot be broken. This is highly inconvenient and expensive for companies that for one reason or another decide to stop using the equipment before the end of the contract. Despite the justifications, companies have a legal commitment to pay for the service.
At the end of the contract, the equipment continues to belong to the lessor despite all the payments made.