More small businesses are leasing technology equipment to cut costs and increase efficiency. But it could mean scant savings if you choose the wrong lease agreement.
In third quarter 2003, equipment leasing grew 16 percent compared to the same period last year. Credit approval ratios climbed and losses on leases dropped.
One reason: Tech equipment vendors are encouraging more leasing deals to boost business volume and increase PC shipments.
Thanks in large part to small business spending, IT equipment leasing will grow an average of 6.5 percent per year between 2003 and 2005, up from 1.5 percent between 1998 and 2002, according to a report by consulting firm R.S. Carmichael & Co.
What type of lease works best?
Operating lease: Operating leases usually offer the lowest payments and work best for technology equipment.
Reason: With an operating lease, you acquire the equipment for only a small portion of its useful life, so you can update or replace equipment that becomes obsolete.
Finance lease: Beware of finance leases that require you to buy the equipment at the end of the agreement.
Reason: Terms tend to be longer. And you'll be responsible for maintenance, taxes and insurance.
Finance leases work best for equipment that retains high residual value as it ages. That's generally not the case with technology items.
Master lease: A master lease lets you acquire additional items as needed under the same basic contract terms without negotiating separate deals. That is the most expensive type of lease.
Consider a master lease if you own a healthy, fast-growing company that frequently replaces several types of technology equipment.