When your business needs new equipment, leasing can be a powerful tool to acquire the items you need. You can lease nearly anything including medical equipment, furniture & fixtures, HVAC, computers & software, phone systems, audio visual & sound equipment, specialty trucks & construction equipment, printing equipment, dry cleaning equipment, diagnostic equipment, manufacturing equipment, fitness equipment, office equipment, etc. Basically, if it's equipment that is the backbone to your business, you can probably lease it. The list goes on. Upon executing a lease, it is important that you ask the right questions. This is important so that you know exactly what your future holds regarding that equipment and so that you don't encounter any unwelcomed surprises.

First, what type of lease is it? Most small businesses opt for an operating lease. When executing this type of lease the leasing company retains title to the equipment and the user of the equipment (you) can reap the tax benefits. The payment is considered an operating expense instead of a depreciable asset. Another basic type of lease is a capital lease. This is actually very similar to a loan and the user of the equipment retains title to the equipment and it's therefore considered an asset on your balance sheet. The tax advantages are normally better with an operating lease and you also don't need to worry about getting stuck with obsolete equipment. Again, just ask the right questions when executing a lease.

Another excellent question would be, can I terminate the agreement early. If so, at what point can you do so and would there be any kind of penalty? This is important to know if you need to update your equipment or just simply get rid of it.

How long is the lease term? Typical lease terms are for 24, 36, 48 or 60 months (sometimes longer). It should be fairly obvious that payments are lower on the longer lease terms. Keep in mind that while the payments are lower with the longer terms, you end up paying more after all is said and done. Also, when pondering what term works best don't forget to consider your expected equipment usage lifespan. If you think you'll need to upgrade in 3 years, don't opt for the 5 year term without carefully considering the implications.

Also, find out about the buyout option. Some leases are set up so that at the end of the term, you can buy the equipment for one dollar. These are usually referred to as a buck out lease. When you choose this option, satisfy your lease term and execute the one dollar buyout you become the titled owner. Not bad. Normally, the monthly payments are a tad bit higher for a buck out lease than if you select one with a buyout at FMV or fair market value. This is exactly what it sounds like it is. You can buy the equipment for its current market value at the end of the lease term (really similar to a car lease). This will usually yield a lower payment than the buck out option. This is the best option if you know that you won't be keeping the equipment and will need to upgrade.

Leasing can be an excellent way to finance your business equipment needs. When using this approach, it's all about leverage. You have better tax advantages, you usually don't need to tie up as much of your valuable operating cash when you initially acquire the equipment, and you don't need to worry about being stuck with obsolete equipment. Equipment leasing is a fantastic way to finance your business, just be sure to ask the right questions upon executing the lease.