To Lease Or Not To Lease a Forklift
Companies have several choices when it comes to decisions about the acquisition of forklifts. Obviously, the first choice is whether or not to purchase a forklift for their company. Much depends on whether they require a fleet of forklifts for their operation, or whether a forklift is incidental to their business. Some companies determine the minimum number of forklifts they need for their normal annual output, and then reserve the option of leasing for bumps in their productivity or cyclical activity based on special seasons or contract fluctuation. The decision the purchase a new forklift is a significant and costly business investment, so an analysis of the pros and cons of leasing over buying (or even renting) should be explored.
Leasing a forklift can be a good option for business owners who have limited capital or who need equipment that must be upgraded every few years, while purchasing equipment can be a better option for established businesses or for equipment that has a long usable life.
Leasing your forklift preserves capital and provides flexibility but may cost you more in the long run. One of the leasing advantages is less initial expense. The primary advantage of leasing a forklift is that it allows you to acquire assets with minimal initial expenditures. Because equipment leases rarely require a down payment, you can obtain the forklift you need without significantly affecting your cash flow. Another advantage is that lease payments can usually be deducted as business expenses on your tax return, reducing the net cost of your lease. Also, leases are usually easier to obtain and have more flexible terms than loans for buying equipment. This can be a significant advantage if you have bad credit or need to negotiate a longer payment plan to lower your costs.
Leasing also allows businesses to address the problem of obsolescence. If the nature of your business is that you may have to upgrade your forklift to a more advanced model in the short term, a lease may be more economical in the long run. Generally you are free to lease new, higher-end equipment after your lease expires. This is definitely a plus if the nature of your business is in flux.
There is one situation where you may have to choose between renting or leasing. We write more about renting forklifts elsewhere, but suffice to indicate here, that for seasonal (holiday or summer) surges in business, for very sort-term use, rental of forklifts would most likely be more economical than leasing because of some of the strings attached to lease agreements. We suggest that you read the article on renting forklifts elsewhere on the U.S. Forklift Network.
Let it be noted, however, that there are certain disadvantages to leasing Forklifts. First is that there is a higher overall cost. Leasing a Forklift is almost always more expensive than purchasing it. In making your decision of lease or purchase, be certain to compare the bottom line of each option over a given number of years. Another disadvantage is that you don’t own the Forklift. You don’t build equity in the forklift. Unless it has become obsolete by the end of the lease, this lack of ownership is a significant disadvantage.
Also, you have the obligation to pay for entire lease term. You are obligated to make payments for the entire lease period even if you stop using the equipment. Some leases give you the option to cancel the lease if your business changes direction and the equipment you leased is no longer necessary, but large early termination fees always apply.
So these are some of the questions you have to ask yourself when attempting to decide on the best option for your company. Perhaps the two biggest questions are, 1) Is the main reason for the decision the initial cash outlay if buying the forklift? If the answer is affirmative, your best choice will be to lease the forklift. Question #2 centers on the length of the lease and the terms at the end of the lease. It all boils down to overall cost. Leasing is not a quick fix – it is a bottom-line business decision.