by Kennedy Smith
Given the state of the
global economy, few companies are anxious--even if able--to buy new equipment, especially an expensive new precision measurement system. However, this hasn't stopped technology from steadily
advancing, which means the equipment a company is using today may be obsolete tomorrow, whether our economic future looks sunny or dismal and whether the company can afford to buy new equipment
or not. Businesses need to stay ahead of the game technologically, but they also need to stretch their budgets, thus creating a fine line between maintaining technological advancement and
avoiding economic failure. Opting out of this balancing act, however, many companies are turning to equipment leasing as a way to supplement their technological needs without denting their
There are several advantages to choosing lease options for expensive metrology equipment, especially when companies are making significant cutbacks in order
to stay above water. What follows is a brief overview of leasing precision measurement equipment along with some advantages to leasing metrology equipment.
Following the economic tide
Leasing metrology equipment is nothing new, but it does rise in
popularity when the economy slows down, according to Colin Robinson, CMM product manager at the L.S. Starrett Co. "Customers have to be much more financially savvy,
especially the way the economy has turned south," he explains. "It's much more justifiable for people to put money into leasing equipment than to put down a large sum of money at
"Leasing actually seems to follow the economic tide," adds Todd Ernst of the marketing group at Mitutoyo America Corp. "As business flow
increases, so do opportunities for lease and rental options."
Customers see equipment leasing not only as a way to avoid the cost of buying
an expensive system, but also as a way to cut down the expenses of hiring technicians for equipment upkeep or buying upgrades when new technology
becomes available. These are included in most lease agreements.
Leasing in a nutshell
In most cases, leasing operates on a partnership basis involving the equipment manufacturer, a lending company and the customer. A metrology equipment
manufacturer enters into partnership with a lending company, which leases out the manufacturer's products and services. The lender then takes over the business of
securing contracts from customers. In some cases, the customer receives technical support, training, equipment calibration and repair services from the
company leasing the equipment; in other cases, the support comes directly from the manufacturer.
Although some metrology manufacturers have long offered leasing as an
alternative to buying metrology
equipment (Brown & Sharpe has leased its measurement equipment since the 1960s, and Mitutoyo has had a leasing program for more than 10 years), some have only recently
instituted such a program.
Last October, Starrett launched its Starrett Equipment Finance program, in which customers' lease applications are processed through
Starrett and sent to an array of lenders, depending on a particular customer's needs or financial situation. Those lenders then make proposals to the applicant, the applicant chooses the most
appealing proposal and a contract among manufacturer, lender and customer begins.
Different lenders and manufacturers offer a wide variety of contracts and support options, yet they are all similar in that they tend to be more flexible than financing programs
offered by banks. This truth makes leasing a very appealing alternative to buying, especially if the company wishing to
lease metrology equipment can't afford now what it might be able to afford in the future. For instance, a company that has just begun operations can lease a
metrology system under a step program, in which the customer initially pays smaller amounts, and then the monthly payments increase, presumably as
business at the company increases. Essentially, as the company grows, it can afford to pay more and the lender can accommodate the customer's needs through flexible payment plans.
"It may be harder for a customer to find a bank willing to contract a step payment plan than it is for a leasing program to offer the same thing," says Jeff
Whitcomb of Starrett Financial Services.
What can be leased?
Normally, any type of metrology equipment, new or used, is available for lease. This includes CMMs, optical equipment, vision equipment, process
control/monitoring technology, software and services, which can be leased for just about any length of time. In most cases, the lender asks for a 12-month (or
longer) commitment; however, some lending companies offer leasing on a month-to-month basis and even rental options on a week-to-week basis. Nevertheless, a customer
might have difficulty finding a leasing option on a piece of equipment with a value of less than $10,000. The most expensive item could be $500,000 or more, according to Ernst. In most cases,
proof of insurance for leasing any piece of metrology equipment is a prerequisite, along with a credit check and a down payment. Depending on the contract, a company's monthly payments might
be as small as $700, but could cost up to a few thousand dollars a month.
Almost all lease contracts come with some kind of manufacturer's warranty that includes technical
support, repairs and calibration. This appeals to the company because it's a way to avoid additional costs of hiring
inside technicians for equipment upkeep. If it breaks down or needs a new part, the lease contract often guarantees repair at the manufacturer's or lender's
expense for a given amount of time. Lending companies and manufacturers usually also give customers the option to buy the leased piece of equipment at the contract's conclusion.
Avoiding technological obsolescence
Whitcomb notes that a significant advantage to leasing measurement equipment is
that it's an affordable way of avoiding falling by the wayside technologically. "Quality is where you need to keep up," he notes. "In leasing equipment, you
have the ability to upgrade much more easily than if you had purchased the equipment."
In many cases, manufacturers and lenders offer trade-in or upgrade options to
leased equipment. If the product is purchased rather than leased, it falls on a company's shoulders to spring for upgrades or replacement.
CEJohansson's Saphir 1.0 m x 0.6 m
Quality Advantage Lease Program
Ph: (877) 764-6397
E-mail: email@example.comWeb site: www.cejmetrology.com
Tax breaks are another advantage to leasing metrology equipment,
adds Ernst. "Some states offer tax advantages over outright purchases, as well as some possible federal tax incentives," he says.
Continental Resources Inc., a leasing
company for high-tech measuring equipment, offers a workbook that explains how leasing may end up costing the company far less than if it were to buy outright. "A Closer
Look at Buying, Leasing and Renting Workbook" explains the Alternative Minimum Tax, which was introduced in the Tax Reform Act of 1986 and essentially made the purchase
of equipment more expensive than in the past.
Under the AMT, some standard tax deductions are now treated as Tax
Preference Items, which are added to the company's regular taxable income to determine the AMT income. Twenty percent of the AMT income becomes the
Tentative Minimum Tax. If the TMT is greater than the regular taxable income, the company must pay the difference, the AMT and its regular tax. Lease
payments and rentals are not Tax Preference Items, so they are not added to regular taxable income in the calculation of the AMT income. Additionally,
because the company doesn't own the equipment, there are no Tax Preference Items for accelerated depreciation or book income.
The Continental Resources Inc. leasing workbook also features cost comparison charts for leasing vs. buying, along with a short questionnaire to determine which
options are best for a company. This resource is available online at www.conres.com/corporate/Leasing.html .
Companies working on short-term projects may want to consider leasing special
equipment, especially if they have no plans of using the equipment once the particular project is up. "An open-ended lease allows the lessee to obtain the
equipment to successfully complete its supply contract," Ernst says. He also notes the advantage of leasing as a way to test the waters, or see if the equipment is
worth buying. "The customer can do an extended evaluation of the equipment prior to a long-term commitment," he explains.
A short contract lease may also come in handy if a business experiences seasonal rushes and needs quick extra help to increase productivity during a short
period of perhaps only a few months.
Lease programs are generally fitted to customer needs, and leasing companies offer several packages to match different customers' circumstances. Yet, each
leasing company follows its own particular set of guidelines pertaining to lease length, buyout options, interest rates, monthly charges and technical support.
For example, the CEJohansson Co. has offered the Quality Advantage Lease Program since the latter part of last year. Since that time, it has met considerable
success. "We've been told that our lease program couldn't have come at a better time," comments Beth Graham, marketing manager at CEJohansson. An
overview of the Quality Advantage Lease Program follows:
A $40,000 multisensor vision metrology system can be leased for about $500 a
month, and an $80,000 CMM can be leased for as little as about $1,000 a month (or $2,000 a month, which includes service and support costs). The
Quality Advantage Lease Program includes the metrology system, installation, off-site training, annual calibration, parts and labor, hardware and software
upgrades, 48 hours of parts programming, 48 hours of application analysis and a 24-hour measurement hotline. Contracts are written for 48 or 60 months. Once
the contract is up, the customer has the option to buy the equipment for $1 or to renew the lease contract, return the current system and receive the newest system.
There are some circumstances that might make buying metrology equipment
more practical and in the best interest of a company. These include instances in which the company fully intends to buy the product eventually. Although it's
almost impossible to find a leasing contract that doesn't include the option to buy after the contract is up, a customer usually ends up paying more for the product in
the long run this way. A bank might not provide a step payment plan, but it might offer lower interest rates.
Another problem one might encounter with leasing is that if a company signs up for a lease-to-buy program, it runs the risk of acquiring an out-of-date product
once the contract is up. Many times, the decision to buy the product needs to be made upon initially acquiring the leased equipment. If a company does decide on
the buyout option once the contract is up, the equipment is solely the property of the customer and the manufacturer and lending company have no obligation to
keep offering technical support. This means a business that has purchased a system after a lease might have to hire its own technical support and repair specialists.
Equipment leasing summed up
In general, leasing expensive measurement equipment saves money for
businesses looking to pinch a few pennies in the short term, although it might end up costing them more in the long run. It's an alternative to buying that is extremely
helpful during hard times; not only are there tax breaks, but
lease packages are so diverse and plentiful that it's not difficult to find a plan
perfectly suited to individual needs. With a lease plan, businesses can keep their heads above water technologically, even as their pocketbooks ebb with the economic tide.
About the author
Kennedy Smith is Quality Digest's assistant editor. E-mail her at firstname.lastname@example.org .