Other Sources of Financing

Leasing Fixed Assets
More and more small businesses are leasing rather than buying their fixed assets, such as land, buildings, and equipment. By leasing, your business can acquire the fixed assets it needs by merely committing itself to rental payments, without making a substantial cash payment or incurring a large financial obligation. Although this policy may appear more expensive over the long run, it means the business will have more operating (working) capital available for current expenses and growth.

Leasing Equipment
Equipment leases are usually written on the total selling price of the equipment and are drawn up for a period of three to five years. The total amount paid includes the selling price plus finance charges. It is generally to your advantage to lease equipment in the following situations:

• You are rapidly expanding and need all available working capital to increase inventory, hire more staff, or expand plant facilities
• The cost of new equipment is high and you do not have the cash available The equipment needs to be replaced frequently, often because of technological advances
• The equipment is used infrequently or temporarily

Before deciding whether to lease or to buy equipment, develop a cash flow forecast for each option and consult with your accountant. Consider each lease or purchase separately, look at the alternatives, and pick the one that best suits your needs. For more information on leasing equipment, refer to ED&T's Managing a Small Business.