99Forum - Discussion Forums - Message Board Forum

Disadvantages of lease financing:

Leasing is a preferred means of financing for certain businesses. However it is not for everyone. The type of industry and type of equipment required also need to be considered. Tax implications also need to be compared between leasing and purchasing equipment.

* You have an obligation to continue making payments. Typically, leases may not be terminated before the original term is completed. Therefore, the renter is responsible for paying off the lease. This can pose a major financial problem for the owners of a business experiences a downturn.
* You have no equity until you decide to purchase the equipment at the end of the lease term, at which point the equipment has depreciated significantly.
* Although you are not the owner, you are still responsible for maintaining the equipment as specified by the terms of the lease. Failure to do so can prove costly.

It's expensive. Leases are almost always more expensive in the long run than buying items with cash, and leases are sometimes more expensive than obtaining commercial loans to buy the same items. How much more expensive depends on a number of factors, such as

The cost of funds (interest rate) used to calculate lease payments. The higher the interest rate, the more the item will ultimately cost you.

The length of the lease term. The longer the lease term, the smaller the incremental payments.

The residual value of the equipment. The estimate of what the equipment will be worth at the end of the lease.

Lease initiation fees. Fees that must be paid at the start of the lease, including necessary deposits and processing fees.

The capitalized cost of the item. The negotiated price of the equipment.