EYE ON EQUIPMENT
Leasing vs. Buying
By Susan P. Tarrant

The decision to create an in-house lens processing lab is a big one. But the rewards are great-faster turnaround means better customer service, and the savings on keeping jobs in-house can justify the expense of the equipment.

But once a dispenser makes the decision to invest in in-house lab equipment (tracers, edgers, and the like), another decision looms large-how to pay for it all. The equipment is not cheap, and there is an initial outlay of funds that needs to be addressed.

You've got to make some decisions-namely, whether you're going to buy the equipment outright, pay installments, or contract a lease. To go over the pros and cons of each option, Eyecare Business enlisted the help of Debra P. Schmidt, vice president of sales for Popular Leasing. Popular Leasing is the official "preferred provider" of the American Optometric Association.

There are two types of financing an equipment purchase-leasing it or buying it outright. One is fairly simple (providing you have the cash), and the other a bit more complicated.

According to Schmidt, there's a certain "profile" of folks who opt to buy their captial equipment outright: High-paid doctors and conservative business people. The first one is fairly obvious, as they've got the money for purchases in the realm of five figures and up. Conservative business people are comfortable operating under the policy of "if I need something I'll save up and buy it."

Both methods are fine. Some folks are simply more comfortable "owning" everything under their roof, or feel more in control of their money if they don't have a lot of debts.

There are certain advantages to leasing your equipment. The two main types of leasing are lease with an option to buy, and an installment loan. Both contain attractive tax perks.

Leasing with an option to buy is the much more common lease package, Schmidt says. "It makes sense for someone who has a license behind them, or someone who's incorporated," she explains. Why? You can write off your lease payments... and that shelters some of your income. "It's a great way to strategize your income." 
And, with an option to buy lease, you also have choices. For example, when a lease is up, the dispenser would have the option to buy the piece of equipment for an additonal sum. Or, the dispenser may have the option to easily upgrade the technology by getting a newer model and just moving around within the lease. The latter is a fairly important component, given the rate of technological improvement in today's in-house equipment.

"That's why it's such a good option," Schmidt says of leasing. "It gives you all sorts of options."

Another type of leasing option is an installment loan, which is very similar to a regular loan with the exception that the payments can be fixed for a certain amount of time. However, there's a little thing called Section 179 of the IRS Code that allows a certain dollar amount of that installment loan to be written off for a tax season. That dollar amount can be formidable, but it varies.

Consult your CPA.

In addition, Section 179 allows for anything remaining (over and above what you were able to write off) to be depreciated over the remainder of the loan. So, while your equipment is depreciating in value as if you had already owned it outright, you're also getting tax credits for it.

According to Schmidt, hundreds of millions of dollars go through the leasing channel each year. "There's a reason people are doing this," she says.

Is there a drawback to leasing? Of course. The one thing you would avoid by buying the equipment outright is interest. You'd probably even be able to negotiate a better price by paying in full. However, you wouldn't be able to write off that money, nor would you get any tax credit for something that will begin the minute it's installed in your dispensary-depreciation.

The answer lies in what's right for your business. And that's something only you-and your CPA-can determine.

How to Choose

Schmidt warns not to just sign up with any leasing company who offers you a contract. Like any other major purchase, investigate your lendor to make sure your interests are being met, you're getting a fair contract, and, more importantly, you're not going to be hit with hidden fees.

Once you've contacted a lendor or two, here are some important things to consider before signing on that all-important bottom line, Schmidt suggests:

• What's in writing? Lendors can tell you about all sorts of great deals and great rates, but it's what they're willing to put in writing that counts.
• Accreditation. Check out the accreditation of the lendor. Are they associated with a bank? That's one way to ensure security.
• Compare. Be an educated consumer. Don't rush into any one contract. Shop around.

"Buyer beware," Schmidt warns. "Take the time to understand what you're signing. And if you got both the edging equipment and the financing for a good price, you'll do OK financially."