How Much Does it Cost to Lease Test Equipment?
In an engineering environment, testing equipment accounts for a significant portion of capital expenses. No matter how much equipment you have, there’s constantly a need to add new instruments or replace outdated tools with better-performing ones.
Due to the high costs associated with acquiring test equipment and the ongoing need to upgrade what you already have, many companies choose to lease instruments rather than buy them outright. One of the biggest reasons? Little or no money down is required.
Beyond just engineering environments, leasing is so popular that four out of five U.S. companies use it acquire at least some of their equipment, according to the Equipment Leasing and Finance Association (ELAF). Nearly one-third of all externally financed capital expenditures in the country are financed through leasing, ELAF data shows.
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Pros and Cons of Test Equipment Leasing
As we’ve said, one of the major benefits is that little or no money down is required to lease equipment. Get the testing equipment you need even if you don’t have the immediate cash on hand to buy it, or just save your working capital for other expenses. Leasing also means you’re never stuck with outdated equipment. When the lease expires, you can return the equipment, trade it for newer equipment or buy it outright if it’s worth keeping. There are also tax benefits — lease payments can often be deducted as a business expense.
On the downside, leasing is usually more expensive than buying in the long term because of the finance charges. Leasing commits you to a piece of equipment for the length of the term, even if you no longer need or want it. And for startups in particular, leasing can be risky because business owners are often required to use personal credit to obtain the lease.
Cost of Test Equipment Leasing
As with leasing any type of equipment, the cost depends heavily on what kind of equipment you purchase, the amount of equipment your purchase, the length of the lease and your credit.
Generally, with good credit:
- Leasing $5,000 worth of equipment will cost $425-$525 per month for a 12-month lease; $200-$300 for a 24-month lease; and $130-$230 for a 36-month lease
- $25,000 worth of equipment should cost $2,300-$2,400 a month for 12 months; $1,200-$1,300 for 24 months; and $825-$925 for 36 months
- $50,000 worth of equipment will cost $4,000-$5,000 a month for 12 months; $2,000-$3,000 for 24 months; and $1,650-$1,750 for 36 months
As you can see, the longer the lease term, the lower your monthly payments. Leases can also be obtained that last five years or more, lowering your payments even further.
Most companies offer two different buyout options at the end of the lease: a $1-$100 buyout or a fair market value buyout. Just as they sound, the first option lets you pay anywhere from $1 to $100 to own the equipment outright, while the second requires the remainder of the equipment’s value, minus what you’ve already paid. Most leasing companies allow you to choose which way you want to go when you sign the lease, but the first option increases monthly payments.
Keep in mind that if you’ve covered most or all of the equipment cost throughout the course of the lease, it usually makes sense to buy the equipment when the term ends. You can always sell it if it’s not longer needed, recouping some of your investment. However, if the value of the equipment is substantially more than you’ve invested thus far and/or you no longer want the equipment, it’s best to return it or trade it in.