# Leasing screenprinting equipment



## amistad (Nov 28, 2012)

We were planning on leasing a conveyor dryer for our screenprinting business but we did not take into account that we would have to get insurance for the machine while we have it leased. For those of you that have leased equipment, did you think it was worth it or do you regret leasing and think maybe you should have purchased it instead, either being with cash or a loan?


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## Printavo (Oct 7, 2007)

You'd be leasing a depreciating asset. Unless it's an amazing deal or cash is very tight, usually doesn't make sense. Financing is a bit different at least you own it and your cost of using the banks cash is interest.


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## amistad (Nov 28, 2012)

Printavo said:


> You'd be leasing a depreciating asset. Unless it's an amazing deal or cash is very tight, usually doesn't make sense. Financing is a bit different at least you own it and your cost of using the banks cash is interest.


In addition to this we just found out we are mandated to get insurance on the equipment. We did the math. On a $4500 piece of equipment we are paying over $5300 in interest and insurance premiums on a 5 year lease. Total of $9800 in five years. OUCH!!!


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## numbercruncher (Feb 20, 2009)

Might try Jeff Mansfield - Beacon Funding –847-897-1771 - straight shooter and willing to answer questions


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## Printavo (Oct 7, 2007)

True BUT the interest is a cost of utilizing their capital. You can definitely shop around for better banks though. We've seen these guys around the ISS Shows a lot directcapital.com


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## merchmonster (Apr 6, 2015)

Printavo said:


> You'd be leasing a depreciating asset. Unless it's an amazing deal or cash is very tight, usually doesn't make sense. Financing is a bit different at least you own it and your cost of using the banks cash is interest.


Counterpoint: Cash is the most valuable asset of any business and you need to protect it. If you can get a critical piece of equipment with little capital down, then it can be a good move to have someone else help finance your growth. Can't pay your bills with the money you spent on equipment. Also if you are still in startup phase it defers the risk of failure onto the company that financed you. I doubt many Sprint 3000s are purchased outright.


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## TABOB (Feb 13, 2018)

It's all about the business plan current position.
For example, If you already have a profitable business, and you cannot meet the demand due to not having a conveyor dryer, then leasing may be a good idea. The extra cost will be offset by the otherwise lost business. 
However, if you are just starting out, and have no idea how many sales you will have...Then leasing expensive equipment may not be such a good idea.


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## splathead (Dec 4, 2005)

1. You should have insurance on your equipment, leasing or not. Prudent business practice.

2. If you did a comparison, you would find the cost to lease is almost exactly the same cost to put it on an 18% credit card. 

3. Be aware of a true lease's hidden costs. Read the fine print. At the end there is always some fee to get the machine back to the lease co. If there is no fee and you own the equipment outright at the end, then it's not really a lease-it's a financed purchase. You know, like an 18% credit card.


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## merchmonster (Apr 6, 2015)

splathead said:


> 1. You should have insurance on your equipment, leasing or not. Prudent business practice.
> 
> 2. If you did a comparison, you would find the cost to least is almost exactly the same cost to put it on an 18% credit card.
> 
> 3. Be aware of a true lease's hidden costs. Read the fine print. At the end there is always some fee to get the machine back to the lease co. If there is no fee and you own the equipment outright at the end, then it's not really a lease-it's a financed purchase. You know, like an 18% credit card.


this information is spot on.


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## PatWibble (Mar 7, 2014)

Five years is longer than a lot of leaing agreements, which in part exp[lains the high interest. The cost of insurance is incidental to the leasing cost, as Joe said.



To get a balanced picture talk to your accountant about the taxation pros and cons of leasing. In many territories leasing costs are treated in a similar way to a rental charge, and are 100% tax deductable. So if your tax rate is 20% then the true cost is 20% less. If you were to buy with a loan or credit card then onlt the interest is tax deductable.


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## splathead (Dec 4, 2005)

PatWibble said:


> If you were to buy with a loan or credit card then only the interest is tax deductable.



Pat, In the U.S. equipment purchases have always been tax deductible. In the old days it was through annual depreciation. But since Section 179 of the IRS code was passed, the full purchase price of equipment up to $1M can be deducted in the year it was purchased.


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## amistad (Nov 28, 2012)

splathead said:


> Pat, In the U.S. equipment purchases have always been tax deductible. In the old days it was through annual depreciation. But since Section 179 of the IRS code was passed, the full purchase price of equipment up to $1M can be deducted in the year it was purchased.


I will keep that in mind for taxes next year. Just purchased an embroidery machine. 

Sent from my SAMSUNG-SM-G891A using Tapatalk


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## TABOB (Feb 13, 2018)

splathead said:


> Pat, In the U.S. equipment purchases have always been tax deductible. In the old days it was through annual depreciation. But since Section 179 of the IRS code was passed, the full purchase price of equipment up to $1M can be deducted in the year it was purchased.


In the UK, we can also deduct the full purchase price of equipment, up to £200,000 per year. For anything over that amount, we also use the annual depreciation method.


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## PatWibble (Mar 7, 2014)

splathead said:


> Pat, In the U.S. equipment purchases have always been tax deductible. In the old days it was through annual depreciation. But since Section 179 of the IRS code was passed, the full purchase price of equipment up to $1M can be deducted in the year it was purchased.


 I agree, but that only works out if the businesss made enough profit to deduct the cost of equipment. For a start-up, or even an established printer investing in a new auto or dtg then that might not be the case.
If you don't make enough profit and need to go down the annual depreciation route then in the UK that is only deductable at 18% of the purchase price being offset each year. 100% of lease payments are deductable, likely at a faster rate.


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## TABOB (Feb 13, 2018)

PatWibble said:


> I agree, but that only works out if the businesss made enough profit to deduct the cost of equipment. For a start-up, or even an established printer investing in a new auto or dtg then that might not be the case.
> If you don't make enough profit and need to go down the annual depreciation route then in the UK that is only deductable at 18% of the purchase price being offset each year. 100% of lease payments are deductable, likely at a faster rate.


Not true.

The loss can carried back to the previous tax year, and up to 3 years for new or closing businesses.

So if you buy £200,000 worth of equipment but you only make £50,000 this year, you can deduct £150,000 from your taxable income during the last 3 years, and get the tax paid back.
Also the loss can be carried forward, and be deducted from a future year.


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## PatWibble (Mar 7, 2014)

TABOB said:


> Also the loss can be carried forward, and be deducted from a future year.





The danger with that is that you are gambling that the annual limit stays the same. It has fluctuated between £25k and £500k over the last 7 or 8 years. There is no guarantee that it will stay up at £200k, so you could be forced into changing to 18% pa depreciation method.


The UK annual allowance isn't as generous as the US rate. Mid sized firms could easily spend more than the allowance year on year. Having to depreciate that investment at 18% of value pa ties up a lot of money, making leasing more attractive.



Some lenders don't like to see too high a level of depreciating assets on a balance sheet, which is another reason why many companies prefer to lease than to borrow.


At the end of the day, whatever country you are in you should talk to your accountant to get advice that applies to your situation.


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## abetterimage (Sep 8, 2007)

When we expanded our business to a storefront, we bought a commercial building with 2 tenants renting other space. We were cash poor but wanted a DTG printer, so we entered into a 5 year lease for a Brother GT-540. We asked for the actual interest rate we would be paying and were lied to (told about 6%, actual was closer to 10% not including the term end buyout). About 18 months into the lease I asked for a buyout amount. The price given was MORE than if I continued to make the lease payments for the remainder of the lease! At the end, we had to pay a 10% fee to keep the equipment ($1800). Overall it was very expensive. I wish I had checked with the local banks. We would have done much better, but would have had to come up with a down payment. That's the one advantage of leasing - cash flow. But you are still negatively affected by having higher lease payments than a straight finance payment would be. As far as insuring the equipment, we had a business insurance policy that covered it, but had to list the leasing company as an "additional insured," which cost about $25 extra every year for that one piece of paper to be generated.
We now buy equipment outright, but if I did need to finance something, I'd definitely avoid leasing if possible.


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## TABOB (Feb 13, 2018)

PatWibble said:


> The danger with that is that you are gambling that the annual limit stays the same. It has fluctuated between £25k and £500k over the last 7 or 8 years. There is no guarantee that it will stay up at £200k, so you could be forced into changing to 18% pa depreciation method.


That's not how it works.
The business loss and the equipment allowance are two different things. Once the allowance is used and becomes business loss, it can be deducted from a future year profits in addition to any equipment allowance of that year.




> Some lenders don't like to see too high a level of depreciating assets on a balance sheet, which is another reason why many companies prefer to lease than to borrow.


If comparing leasing to borrowing, then leasing may be better in some cases. I was talking about cash purchases using profits or existing capital... which is the way I like to do it.


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