Good decision making on the use of resources is one of the keys to business success. As an owner of a company or a manager, there are various issues you have to deal with, the most important of which concerns financial resource including allocation and sourcing.
There are many instances when your company may need financing from external sources. If you manufacture products or offering engineering or fabrication services, you’d be allocating a great portion of your financial resources to equipment and facilities. These assets are vulnerable to damages due to wear and tear, and become outdated. You have no choice but to replace them. Introduction of new and more effective production machinery can also encourage you to replace your old equipment. Naturally, you’d want to be able to cut down on your production cost and be more efficient. You’d want to stay competitive.
There are arguments you have to consider regarding the manner of securing new equipment for your plant or factory. Should the company buy new machinery? There are several issues that need to be looked into before you can give an answer to this question. The first is what will be the impact of buying equipment cash on the company’s overall operations. If the cost will represent a significant reduction in resources available to other important activities of the company, then, buying cash is out of question. The second is what the most viable alternative is.
Your best option when your company can’t afford to buy machinery outright is to lease it. There are many companies that offer machinery and equipment on a lease agreement. You have to choices under this option – capital lease and operating lease.
A capital lease is for all intents and purposes since you have to pay the full amount of the lease at the beginning of the agreement, take care of the insurance, maintenance, and taxes. At the end of the term of the lease, you have the option of buying the equipment at a minimal price.
Operating lease is applicable to short term leases. If the equipment is needed for a special project that will not take a long time to complete; this is the option to take. But you can also use it even for equipment that you need long term. Generally, the monthly rent of equipment under the operating lease is low, so you can save a lot of money by just renewing the lease regularly.
The most advantageous thing about renting equipment instead of buying it is you are able to maximize the use of your financial resources. You do not even have to take the money for the rent from the company’s bank account; you can get it from a bank or other businesses offering commercial financing. This financing service includes funding for various business-related activities from lease financing to working capital financing.
So you are planning to get the newest or most efficient equipment for your company. The financial condition of your company should not prevent you from doing that. You can easily fund the cost of lease or purchase by getting commercial financing.