Short on capital but long on equipment needs? Consider leasing instead of buying. Leasing frees up capital because it eliminates the large cash outlays and down payments required when purchasing or financing equipment.
The smart way to obtain equipment is to borrow capital from a bank because it costs less to repay the loan and you ultimately own the equipment. Unfortunately, you might not have that option. Because with the interest caping, you might not qualify for a bank loan for your startup, say KES 1,850,000 for a new printing press, they leased the new press at KES 55,000 per month for four years.
Leasing is more expensive in the long run, you pay for use of the equipment; you pay for depreciation; you pay interest.
It may be your only choice, however. If so, negotiate every clause to get the best deal you can before you sign a lease. Lease terms are not written in stone until you sign. Study the contract carefully to verify the term of the agreement, renewal options, equipment value, payment amounts, cancellation penalties and what happens to the equipment at the end of the lease.
Whatever you lease for your business is deductible as an operating expense (though an outright purchase may prove more beneficial, taxwise). Leasing makes it possible to acquire needed equipment – anything from copiers and office furniture to vehicles and heavy machinery – when you can’t otherwise afford it, while keeping your balance sheet healthy.