To lease or not to lease- that is the question many operators of forklift trucks must consider when determining what is best for the company. Whether it is better for a company’s bottom-line to own a forklift outright or to lease a forklift is best answered by considering the advantages and disadvantages of forklift rental and leasing options.
The main reason companies make the decision to lease forklift equipment rather than purchase it outright is to conserve capital. Preserving its cash flow and line of credit is a primary concern of many in the material handling equipment distributor business. Committing to leasing equipment keeps lending institutions more comfortable. They would prefer seeing forklift machinery as a fixed expense on the balance sheet, than as a depreciating purchase or asset. Whereas a loan will show up on the balance sheet as a liability, a lease is considered “off the balance sheet” financing that doesn’t add to your debt.
In tough economic times, lending institutions do not offer as many deals or options to lease equipment; still what is available deserves careful consideration, especially for heavily debt-financed companies.
Do your Own Cost/Benefit Analysis
Some important questions to consider revolve around the cost to benefit ratio. Average questions to consider would include the following:
- Can I afford it?
- Will it be obsolete in two years?
- How long will it be needed?
- How often will the forklift be used?
- What is the interest rate on a loan versus lease agreement?
Upon completing your analysis you might decide that leasing is preferable to owning. Perhaps you only need a forklift during your busy season so shelling out money for a purchase would be a waste of your financial resources.
In that case there are at least three leasing options to choose from:
1.Lease to own
2.Lease with a purchase option
3.Lease with maintenance included. (Also known as a full service lease.)
The goal is to figure out which lease can most effectively do the job as economically as possible. It may turn out that leasing is not cost effective if you able to find good rental rates for a project of short duration. Talking to vendors and putting out requests for proposals is the best way to find the deals available to companies in your similar situation.
Read the Fine Print
A lease agreement is only as good as its fine print, so do not forget to examine all the details closely. Is it really in your best interest to lease from a company that does not include a maintenance contract as part of the overall deal? Do not assume lease agreements automatically include maintenance contracts because many do not. Check the fine print to make sure. You will pay extra for routine maintenance if it is not already included.
Suppose you want some hands on experience before committing to an out-and-out purchase. Lease from a company that offers a nice incentive to buy in the future. For example a free two-year maintenance contract as part of the leasing agreement is a nice incentive to purchase after the lease period is up. You can buy with confidence knowing the equipment was well cared for and the forklift is in good working order.
Names You Can Trust
As is the case with any big purchase, reliability is all-important. Leasing or renting equipment from a company who has built up a good business name and reputation helps to lessen the fears of those in the material handling business.
Trustworthy leasers will have fleets that are regularly maintained and are put on a strict service schedule. Whether your option includes lease-to-own or not, you will have a well serviced piece of equipment to handle your heavy lifting needs.
Some well-known forklift leasing companies are easily found listed on MHEDA directories and websites.
Forklift rental or leasing is a proven way to conserve capital and make a balance sheet more attractive to potential investors and lenders. Forklifts are a vital piece of equipment for many businesses and thus are a necessary cost of doing business. Evaluate whether this necessary cost could be best utilized as a five year ongoing expense or as an outright purchase.