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Things to consider when you\\\'re leasing

Whether you\\\'re renting space, equipment or a vehicle to operate your business, understand what you\\\'re signing up for.
By Mari-An Santos |

Leasing is the use of a property or equipment over a period of time for a certain amount. For businesses that are just getting off the ground or those that are just recovering from recent calamities, leasing is a very good option.

 

According to Aristides Armas of the Philippine Chapter - Asian Leasing & Finance Association, in his article The Philippine Leasing Industry, leasing gives entrepreneurs the "opportunity to carry out capital expansion while optimizing the use of their financial resources."

Mary Grace Young, owner of Cordillera Coffee, says leasing space can be a huge fixed expense especially if the spaces are in well-known malls. But, the malls can attract lots of traffic and this is good for the business. More people means more sales.

Millie Santos, who owns a small laundry business, supports the argument for leasing. "When you\\\'re starting, it\\\'s a given that you\\\'ll be incurring capital expenses. (Since) money for capital is not infinite, you [have to] budget your capital and find ways so you don\\\'t have to spend a lot of money. If you have a small business, it may take your entire business life just to pay for your own space or equipment. It\\\'s easier to rent."

Both Young and Santos lease commercial space, and offer their valuable advice. Young says haggling is imperative. "If there is a very good site, talk to the leasing manager and signify your interest. From the rate he or she gives, can ask [for] a lower rate. In our experience we can ask them to lower it by 30 percent to 50 percent."

When you do strike a bargain, be sure to read all the fine print, as you will be bound by the rules of the lessor. "Know what\\\'s in the contract--don\\\'t just sign it!? Santos reminds about carefully examining such details as the terms--for instance, how many months advanced payment and deposit--as well as asking about the escalation rate.

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Leasing equipment and financial leasing
Santos says that when you lease equipment, it\\\'s easier to upgrade because "you can return what you are using now and rent a more hi-tech equipment." However, if you lease a piece of equipment for a long period of time, it\\\'s possible that the lease you\\\'re paying is already equivalent to the amount you would have paid if you had purchased it in the first place. On the other hand, if you\\\'re paying for an item by installment, the equipment might already be fully depreciated by the time you have finished paying for it.

On this issue, Young explains: "Leasing equipment is good if it\\\'s [on] lease-to-own [terms]. Coffee machines, [for instance,] are expensive, but if you get [one] on a lease-to-own deal, it will be good for your initial cash flow."

Financial leasing, which can cover a wide range, from vehicles, computers, office equipment, and many others, can be obtained from leasing and finance companies. For most of them, the company will find out what specific equipment you need, purchase it (if they don\\\'t already have it on stock), and lease it to you according to agreed-upon terms. Carefully consider the terms offered by each before you make a decision.


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