With the current tough economy, leasing laboratory equipment could be the way to go for many labs that must now work with very tight budgets. Though leasing does carry some risk, it also has many advantages.
“An equipment lease is one of the best ways for businesses to stay ahead of the development curve,” said account specialist Brad Harmon of First Star Capital (Walnut Creek, CA), an independent direct lender whose focus is equipment leasing, including lab instruments.
He added that leasing allows laboratories to use the most up-to-date technology without having to fork over the huge initial amount of capital necessary to purchase the instruments.
“Running a lab entails making sound financial decisions that improve the condition, quality and overall competitiveness of the business as a whole,” he said, adding that leasing offers a number of other advantages, including:
• Flexibility with terms and equipment
• Conservation of working capital and credit lines
• Increased opportunities from not tying up working capital resources
• Tax benefits, such as enhanced depreciation/accelerated write-offs
• Improved financial ratios (balance sheet) with operating expense vs. liability
• Fast turnaround time compared to other forms of financing
• 100% financing typically available for established companies
As with any type of lease, however, laboratory equipment leasing does have its risks and disadvantages.
What you should be aware of
Mike Bartlett, director of global financial services at Thermo Fisher Scientific (Waltham, MA), which has its own leasing program, says there are two main risks in leasing laboratory equipment. The first is that interest rates could change after a customer has signed a lease.
Since Thermo Fisher’s leases are at a fixed rate for the life of the lease, a customer could end up paying more than necessary if interest rates drop during the term of the lease. On the other hand, Mr. Bartlett added, if interest rates rise during the lease term, the customer ends up getting a better deal with the cheaper rate they locked into at the beginning of the lease.
The second risk with leasing is that a customer could commit to the wrong type of lease, he said, meaning it’s definitely worth your while to research the various types of leases before committing. For example, a customer might sign a five-year lease-to own agreement, where they’ll end up owning the instrument after five years, but the technology changes two years into the agreement.
“They’ve decided they’d like to have the latest and greatest technology, but they’re locked into ownership of [an older model of] that particular instrument,” Mr. Bartlett said. Thermo Fisher does a number of things to prevent customers from choosing a lease that may not be the best fit for their company
“We counteract that through different types of structures,” Mr. Bartlett said. “We have operating leases, and we have technology refresh-type offerings that are certainly available for most instruments that we sell. We try and work very closely with the customers if they do decide that they want to upgrade to that [newer] technology.”
Mr. Harmon of First Star Capital added that acquiring laboratory equipment always involves risks—such as acquiring an instrument that is inadequate or inappropriate for the lab’s needs—no matter how that equipment is funded.
“Investing in lab equipment can entail risks, all of which will be prevalent regardless of whether the equipment is leased, purchased outright with cash or acquired with any other funding option,” he said.
He suggested that lab managers who are considering leasing equipment should first think about why the equipment is needed and what the economic justification is. “If the equipment will pay for itself through cost savings/ efficiencies or by creating an additional revenue stream, it will likely strengthen the case for approval,” Mr. Harmon said.
Lab managers should also make sure they have all the relevant credit and financial information organized and ready to submit along with their application for lease approval and have at least an approximate monthly budget in mind, he said. “This [having a monthly budget handy] will allow the lesser to try and put forth the most affordable lease structure (term, payment, etc.),” Mr. Harmon said.
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