"A lease can be a practical alternative to an outright purchase when you are looking for cost control and conserving cash flow," says Rudd. The cost per month is typically lower vs. loan payments. And during the lease term, you have a chance to save for the final payoff without the pressure of added up-front costs.
On the other hand, you may end up paying more for the machine with a lease vs. a traditional loan once any fees, payments and the final payoff are tallied. Some leases also require a hefty down payment.
"Unfortunately, right now, the way the economy is, if a contractor is looking for low-rate financing for a long-term period, they have to have A+ credit. If they don't, they're probably going to be hit with documentation fees right up front, which could be from $100 to $250," says Aldridge. "In some cases, the financial arm that's doing the leasing is going to ask for anywhere from 5%, 10% and, in some cases, 20% down if they have really bad credit."
Still, leasing can be an effective financing option under the right circumstances. "Leasing should be considered if the contractor wants to minimize his monthly payments and would like to own the latest equipment on a regular basis. It may cost less to lease than to rent, but more to lease than to purchase," Rostberg states. "On the other hand, it may be easier to qualify for a lease compared to a loan, and it may be possible to write off the entire amount of lease payments as a business expense.