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Leasing equipment: Lessors come in several sizes
 While
a small business owner certainly has the option to lease from an
individual, most opt for the substantial resources of either a bank
or independent leasing company.
"The differences between a bank and a leasing company
are evident in both credit and pricing," says Tom Alberti, executive
vice president of Johnson Commercial Leasing, a subsidiary of Johnson
Bank, in Milwaukee.
Banks have more capital available to purchase equipment,
and can therefore pass on lower lease prices and interest rates
to customers. However, banks also require topnotch credit and their
deals include a challenge: dispensing with the equipment at the
end of a short-term lease. And small business owners should remember
that taking a loan to buy equipment reduces the total credit available
from the bank, thereby reducing the money available to purchase
inventory or use for other purposes.
Say a small business owner wants to buy computer equipment
costing $20,902 with a useful life of one year. He needs to finance
$22,626 -- the cost of the equipment plus sales tax. If his credit
is good and the interest rate is 7.75 percent, he will pay the bank
$1,966 per month for 12 months, or $23,587. This is assuming no
fees and no points.
At the end of the 12-month period, when the equipment
is no longer useful, he will need to dispose of it, perhaps giving
it away, paying for it to sit in storage, or selling it at a loss.
A second-tier credit customer may find it easier to
lease from an independent leasing company than get a bank loan to
buy, says Stephen Galop of UniCapital Business Credit Group in Miami.
With leasing companies, the term "interest rate" is generally not
used; rather, there is an "implicit rate." In a lease, ownership
of the equipment resides with the lessor, who conveys to the lessee
the right to use an asset for a predetermined time period at a predetermined
rate.
To illustrate, say the same business owner decided
to lease the computer equipment he needs. The lease payment is set
at $1,566, based on an assumption of residual value at the end of
the lease, with sales tax on each lease payment totaling $129. The
total cost, which includes a one-time documentation fee of $60,
is $20,396.
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