What is in this article?:
For many small club operators, money is often in short supply. And that is especially true for those just setting up their businesses. The option to lease equipment—especially if it is really a financing option that allows for the purchase of the equipment at the end of the lease—is an attractive proposal for many.
To Lease or To Buy?
REASONS CLUB OPERATORS LEASE EQUIPMENT
They do not have the cash flow they need to purchase equipment.
- They want to spread the cost of the equipment over time.
- They want to preserve cash for things that could bring in more members, increase profits and allow the company to grow faster.
- Their business structure is set up so that leasing allows them some tax benefits.
- They plan to swap out equipment every three to five years and want to keep equipment under warranty during the term of use.
- Leasing rather than getting a bank loan can help manage cash flows since the monthly payments for leases are consistent while bank loans can be based on a variable interest rate, which means the monthly payments could fluctuate.
REASONS CLUB OPERATORS BUY EQUIPMENT
- They have the cash on hand to do so.
- They do not want a monthly payment.
- They hold onto equipment for longer than the traditional three to five years and are less concerned about keeping equipment that is only under warranty.
FACTORS THAT DETERMINE FINANCE TERMS
- Business and personal credit of the club owner(s). Better credit equals a better deal.
- Whether the business is a start-up or existing business. Existing operators have a track record while start-ups are unknown risks.
- The size of the transaction. A bigger transaction will cost more overall but less per thousand.
THINGS TO WATCH FOR WHEN LEASING
- Ensure you are working with a reputable leasing/financing company by asking around and checking with the Better Business Bureau.
- Read your contract completely to ensure it does not contain hidden fees.
- Know what will happen at the end of the lease. Will you have the option to buy the equipment? If so, will it be a dollar buy back, a fair market value purchase or a residual? Are you responsible for returning the equipment at the end of the lease?
- Be certain how and when you must notify the leasing company at the end of the lease that you are returning the equipment or that you want to buy the equipment. Leasing companies often require a 30- to 60-day notice. If you fail to do so, you could be charged for another year's lease.
- Reserve money for the shipping freight on the equipment, a cost that usually is not included in the financing.