As a startup founder, small business owner, or lab manager, your primary objective is to ensure your company’s success. So, it’s crucial to equip your lab with appropriate equipment and maintain it correctly, aside from ensuring healthy cash flow, to create an environment that fosters growth. An excellent way to achieve this is to lease necessary laboratory equipment.
Leasing lab equipment is a viable option for significantly reducing expenses. It’s especially beneficial for startup labs, enabling them to use the necessary equipment without spending on huge upfront costs. By carefully weighing the pros and cons, you can decide whether leasing your lab equipment is the best solution for your needs.
Leasing equipment has become a famous option for many laboratories due to its numerous benefits. These include:
1. Simpler Financing And Underwriting Process
If you’re seeking finances for purchasing lab equipment, your lender or bank will likely require your financial reports, and their underwriting process can be rigorous. However, leasing may be a more viable option if your company is less established or has already utilized most of its credit capacity.
When financing for lab equipment, leasing companies typically require less documentation to approve the lease and, in some cases, as little as six months to a year of credit history, much less than a traditional loan. The leasing process is usually faster and more straightforward than the equipment loan process.
2. Lower Upfront Costs
Leasing lab equipment lowers the upfront costs you need to pay, freeing up your budget and enabling you to focus on your research. If you decide to purchase lab equipment, you’ll be responsible for all the related expenses, including purchase and installation fees, training costs, shipping fees, and sales tax.
Working with a reliable leasing company can reduce these upfront costs, alleviating any financial strain, not to mention such firms offer competitive interest rates.
Usually, leasing companies will only require one or two-month lease payments as a security deposit to gain access to the best equipment available. It helps you conserve your working capital, which you can reinvest in business development or certain parts of your operations.
3. Access To Advanced Equipment
It’s said that when you buy equipment, you deny yourself access to the trending technology. Although this might be a small matter for essential equipment, it can substantially impact your company’s operation. Especially in the pharmaceutical industry, where keeping up with new technology is vital.
Leasing lab equipment provides a more adaptable solution, enabling you to upgrade to more relevant and current technology. With this approach, you’re not tied to equipment that’ll inevitably become outdated. You can more readily transition to the next available option while retaining what you already possess.
4. Tax Advantages
Leasing lab equipment can offer substantial tax benefits and enables more efficient management of your lab’s funds. Regardless of whether you operate a private business or work in the public sector, leasing can be an intelligent decision.
Businesses can offset the cost of leasing lab equipment against their tax bill, significantly saving equipment expenses. Large public sector organizations can also move equipment expenses into revenue budgets by leasing instead of purchasing, relieving pressure on overextended capital budgets.
Leasing lab equipment provides financial flexibility and stability for your organization, which is crucial for startups in the early stages of development.
On the other hand, leasing lab equipment has its downsides. These include:
1. Leasing Can Be Expensive Over Time
One of the downsides of leasing lab equipment is that it can be a more expensive option over the long term. Although it allows laboratories to acquire equipment without incurring high upfront costs, lease payments will add up over time and may ultimately exceed the cost of purchasing equipment outright. Hence, you should carefully consider your financial situation and weigh the long-term leasing costs against the benefits before deciding whether leasing suits your needs.
2. You Don’t Own The Equipment
Another downside is that you don’t own the equipment while leasing it, as it remains the lessor’s property. Nonetheless, entering into a lease-to-own agreement at the outset of the lease period can help you resolve this. By doing so, you can acquire the equipment at the end of the lease term for a discounted price of the original cost or at fair market value.
3. You’re Obligated To Pay For The Equipment Even When Not Using It
Leasing lab equipment means you still need to make payments even during periods of non-use. However, lease termination can be the solution to this issue. This may incur fees, but it’s still more cost-effective than paying for unused equipment. If you’re using equipment requiring frequent upgrading, opting for short-term leases rather than long-term ones is advisable. This approach ensures you won’t be stuck with outdated equipment and can easily upgrade as needed.
Moreover, leasing agreements may have strict terms and conditions that could negatively impact the lessee if not adhered to properly.
When working with a suitable leasing provider, the benefits of leasing may outweigh the downsides. However, deciding to lease or buy lab equipment will depend on your specific needs and financial situation, and carefully considering the pros and cons is necessary to make the right choice.