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Lease to Own Equipment: Is It Right for Your Business?

As the new year approaches, financial forecasting should be a top priority for business owners. It goes without saying the current state of Canada’s economy is a source of concern for many. Interest rates are higher than they’ve been in decades, with Canada’s prime rate sitting high at 5.95% (at time of writing). Depending on the lender, the interest rate you receive for a loan could be higher than the prime rate.

So, if you’re planning to make significant purchases in 2023 for your metal fab or HVAC shop, it’s important to consider the advantages of leasing equipment to own in comparison to buying equipment outright with a bank loan. There are 3 main advantages to leasing equipment to own for your shop, and if you’re looking to grow your business in 2023 without taking too much risk, leasing is a viable solution for many.


Advantages of Leasing Equipment to Own

Maintaining Cash Flow

Leasing equipment doesn’t mean you can’t afford to write a cheque to buy the machinery outright. Maintaining cash flow to make appreciable investments is always preferable. Leasing equipment preserves bank credit lines for other working capital needs such as day-to-day expenses and miscellaneous reserves.

Further, leasing equipment will give you the flexibility to make sure you’re investing in business growth. Shop equipment is a necessity that depreciates the moment it hits your shop floor. Although the right piece of equipment will increase your return on investment (ROI) despite the depreciation, it’s critical to focus on other aspects of your business that will increase ROI more efficiently.

Read more about ways you can invest in business growth here:

Leveraging Automation in Your Shop

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Industry Expertise & Flexibility

Something the bank can’t offer is manufacturing industry knowledge or expertise. Most banks don’t understand the lifetime value of machinery and are adamant about reducing their risk when calculating your interest rates and loan terms. A $150,000 transaction does not equal a $150,000 risk, and leasing companies in the industry will understand this. Banks often require an overly secured transaction that will have business owners jumping through unnecessary hoops.

A leasing company can provide flexibility and a better understanding of the value of equipment. Some offer same-day approvals to ensure you receive the machine as soon as possible, while most banks require a 2 – 4-week turnaround. Most leasing companies will offer a payment term suited to your specific business capacity, rather than focusing on risk compensation.

With an average of a 95% approval rating from a leasing company, often a business’  financials are not required to approve a lease. If a customer has had a few challenging years in the past, a lease can still be approved for them to take on a new opportunity and secure the equipment they need to grow.

Tax Deductions

Saving money on taxes is another attractive advantage of leasing equipment to own. When you purchase a machine outright, it’s immediately considered an asset that is taxable. By leasing your equipment, the ownership remains with the leasing company, and you can write off your lease payment as an expense to reduce or eliminate tax on the money you’re spending.

Leasing to own a machine won’t sit as debt on your books either, eliminating interest rates you would be paying on a bank loan.

Adding a piece of equipment to your shop that is producing more revenue than you are paying in taxes is an excellent way to increase your ROI and ensure your investments in machinery are profitable.

Mistakes to Avoid when Leasing To Own

Leasing equipment allows for financial flexibility, something business owners require to ensure their investments are contributing to overall company growth. Nonetheless, leasing equipment is still a serious financial decision that requires careful consideration.

There are a few mistakes that are easy to avoid.

  1. Choosing to lease a cheap piece of equipment.

Cheaper is not always better, especially when considering how much a machine can depreciate over time. A name brand machine will depreciate slower and last years longer than a cheaper alternative, if it’s serviced and maintained properly.

Since you’re planning to purchase the machine at the end of your lease, it’s important to make a long-term investment in a higher quality machine. Empire offers $10 buyouts at the end of most lease terms, making the option to lease a high-quality machine even more accessible.

  1. Losing sight of your business goals.

When choosing your next piece of equipment, always make sure the decision you make is aligned with your long-term business goals. Although leasing equipment allows for flexibility, stay laser-focused on exactly which piece of equipment you need and how it will positively impact your ROI. Avoid leasing equipment that you truly don’t need.

Lease Equipment with Ease

Empire Machinery offers a Lease to Own service to meet the needs of customers and help ensure their business continues to grow when investing in a new machine.

  • The lease can be structured to match cash flow needs. Accounting and budgeting are simplified.
  • In most cases, the write-offs can be accelerated because the lease payments are 100% tax deductible.
  • Equipment upgrades are available at any time during the lease term to help maximize productivity and competitiveness.

What happens at the end of the lease?

  • Purchase the equipment at expiry for FMV (Fair Market Value), in most cases, as little as 10% of the cost or even $10.00.
  • Upgrade the equipment using the equity from the old equipment to structure a new lease.
  • Return the old equipment.

Making the Best Decision for Your Business

Regardless of your business goals, making a significant financial decision requires careful consideration.

Interested in learning more about the advantages of leasing? We’re always happy to help you make the best decisions for your shop. Contact us using the form below, or simply give us a call to learn more.

Toll-free: 1-800-665-8089


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