Last Updated on
July 12, 2023
The life sciences industry increasingly relies on equipment leasing as a financing option to acquire lab equipment needed for R&D and manufacturing. Pharmaceutical companies lease expensive manufacturing equipment for their production facilities, and biotech companies rent cutting-edge research equipment to produce accurate and reliable results and scale their operations.
Medical imaging equipment, such as MRI machines and CT scanners, can be prohibitively expensive for healthcare providers to purchase outright, so leasing allows them to obtain this equipment without a significant upfront investment.
Centrifuges, incubators, and bioreactors (and so much more) are essential for biotech research, and leasing can help researchers obtain the equipment they need without depleting their funding, which has become increasingly difficult to come by.
Many businesses immediately purchase equipment without first considering the best acquisition method. Before you start your procurement process, consider your business objectives, financial constraints, and operational goals. For many companies, leasing equipment offers more flexibility, predictability, and lower risk than purchasing outright. The popularity of equipment leasing is increasing as more businesses recognize its strategic value. According to Grand View Research, the global finance lease market was valued at $210.9 billion in 2021, with an expected compound annual growth rate of 5.1% from now to 2030.
The analysis also sites that the market expansion is due to increased demand for leasing among small and medium-sized businesses and startups. Companies at these stages of development often face difficulties obtaining conventional funding sources like loans and venture capital funding. (Note: Despite a real dip in funding, there are a number of funds still available to biotechs, with specialized biotech VC firms dedicated entirely to investing in early-stage life sciences companies taking on new projects.)
This blog post will explore the advantages of leasing equipment for your biotech.
Equipment leasing refers to the process of renting or leasing equipment such as machinery, vehicles, or technology equipment to a business or individual for a specified period of time.
The lessor (the owner of the equipment) agrees to lease the equipment to the lessee (the user) in exchange for periodic payments, usually monthly. The lease agreement typically includes provisions for maintenance, repairs, and insurance of the equipment.
At the end of the lease term, the lessee may have the option to purchase the equipment, renew the lease, or return the equipment to the lessor. Equipment leasing can be an attractive financing option for businesses because it provides them with access to the latest technology without the large upfront costs of purchasing equipment outright.
The advantages of leasing are numerous. You can:
Equipment leases offer a cost-effective and flexible solution for biotechs (and all equipment-dependent businesses) that need equipment without the upfront costs and long-term commitment of purchasing. Let’s go over these benefits and more in greater detail below.
Equipment leasing reduces upfront costs in a number of ways. There is no down payment—leasing companies instead require an initial payment and a few additional fees. The first payment’s amount can vary based on the lessor and its business model, as well as the lessee, its creditworthiness, the type of equipment being leased, and the duration of the lease.
Monthly payments are typically lower than loan payments, and because you know you’re paying once a month, your payment schedule is predictable.
By eliminating the down payment, lessees can start using the equipment they need without having to make a large initial investment. And because lease payments are often lower than loan payments, equipment leasing can be a more affordable option for businesses or individuals who want to use their budgets cost-effectively.
Additionally, lease payments can be treated as tax-deductible expenses under certain circumstances, which can reduce the company’s tax liabilities come tax season. Speak with a tax professional in regards to your specific tax situation to learn if your company qualifies.
By reducing upfront costs, leasing improves a business’s cash flow and allows the company to use their cash flow for other operational expenses, improving their overall financial health.
You can also keep your business credit line open for expansions, staffing, and other operational expenses, keeping cash reserves free for business development opportunities.
Cash runway is the number of months you have left until you run out of money to operate, and measures how long your money will last based on your current cash burn rate. It’s an important metric for several reasons, and can be used to ensure your company is running efficiently, avoiding overspending, and planning fundraising needs accordingly.
Leasing is just one way you can extend your cash runway and improve your cash utilization, ultimately having an impact on your long-term success. Having a longer runway also ensures you’re ready to make it through the cash crunches and obstacles that result from an economic slowdown.
By reducing upfront costs and improving cash flow, you can more easily preserve your working capital, allocating those reserves towards other core business operations, including research and development, inventory, staffing, and even marketing and sales.
Spreading your monthly payments over the useful life of the asset can also make it easier to manage startup costs and retain capital for day-to-day expenses.
As businesses grow, their operational and financial needs change, and leasing allows for the option to renew equipment usage at a discounted rate, purchase the equipment outright, or end the lease.
This provides businesses with the ability to stay up-to-date with the latest technology and ensure they have the necessary equipment to meet their changing needs without having to make a large upfront investment.
Furthermore, leasing offers businesses the flexibility to match their equipment needs to their budget and operational requirements, enabling them to make informed decisions about their equipment investments.
One of the advantages of leasing equipment is that it lowers the risk for businesses when the responsibility of repairs and maintenance is managed by the leasing company.
When a leasing company handles the maintenance and repairs, it eliminates the need for you to worry about unexpected repair costs. Instead, the leasing company takes on the responsibility of ensuring that the equipment is functioning properly.
At Excedr, we offer service plans that cover routine maintenance and repairs, further reducing the risk and expense associated with equipment maintenance. By opting to include maintenance and repair coverage, you can ensure that the equipment remains in good condition without having to divert resources towards ongoing maintenance and repairs.
Not every leasing company offers the ability to pick the equipment you lease from the manufacturer of your choice. Excedr does. This is because we aim to provide our customers with the flexibility to select the equipment that aligns with their specific requirements, rather than restricting them to a particular manufacturer.
However, it’s possible that certain terms and conditions of the lease agreement can vary based on the manufacturer. And although it’s rare, there may be restrictions on the equipment that can be leased or the manufacturers that can be selected.
Leasing can help you use your time effectively when running a small business or startup. This is because lease approval is often quicker than going through a traditional lender or finance company. However, not all leasing companies are alike.
When you partner with the right leasing company, you can avoid the hassle of dealing with slower sales processes and underwriting. Getting through these processes more quickly frees up valuable time you can dedicate to core business operations.
We conduct our underwriting in-house, require minimal documentation, and get you an answer quickly, moving the entire acquisition process along efficiently. This is especially useful when turnaround times for manufacturers are long.
Leasing offers companies non-dilutive financing options that enable them to acquire the equipment they need without negatively impacting their future borrowing capacity. Due to the added financial burden of loan repayments, traditional financing options can often limit businesses’ ability to access additional financing in the future. Still, leasing allows you to obtain the required equipment without adding significant debt to your balance sheet.
This enables biotechs to preserve their financial flexibility and credit capacity, making it easier to access financing for other business needs in the future. By leveraging leasing options, you can avoid the baggage associated with traditional financing and focus on growing your business and achieving its long-term objectives.
Leasing allows businesses to access the latest and most advanced equipment when that equipment might be exorbitantly expensive. By utilizing leasing options, companies can access equipment that would otherwise not make sense to purchase, spreading out the cost of equipment acquisition over time, making it—as mentioned countless times—easier to manage cash flow and allocate resources to other areas of the business.
By keeping up with the latest technology, you can remain competitive, and improve productivity and efficiency. Additionally, leasing agreements often include provisions allowing businesses to upgrade or replace equipment as needed, ensuring they have access to the most up-to-date technology to support their operations.
This can be especially beneficial for businesses operating in industries where technological advancements are rapidly evolving, allowing them to stay ahead of the curve and remain competitive.
This is a benefit that’s unique to Excedr, as far as we know. Our leasing program distinguishes itself from conventional financing and other leasing companies by leasing refurbished equipment, in addition to demo units. This offers a unique opportunity for cost-savings, which we suggest you consider if you're looking for additional savings.
When you lease, you can typically tailor a financing solution that specifically caters to your organization's business concerns, such as budgeting, cash flow management, grant cycles, and fluctuations during seasonal periods. This flexibility is one of the primary advantages of leasing that empowers businesses to optimize their operations while keeping their finances in check.
Leasing is advantageous since it does not count as a long-term liability or debt, and thus, it won't show up as such on your financial statement. Additionally, leases reduce the amount of capital tied up in assets that decrease in value, thus improving your appeal to investors and traditional lenders. This makes leasing an ideal option for businesses seeking financial flexibility and enhanced credibility.
Not all financing is founder-friendly, which is a term used to describe a company or investor that is supportive of a business founder's vision and leadership style. In this context, founder-friendly investors or organizations often provide resources, funding, and guidance while allowing the founder to maintain significant control over their company's direction and decision-making processes.
This approach is seen as advantageous since it empowers founders to build and grow their business according to their vision without compromising their autonomy. Our leasing program is designed to be founder-friendly.
In contrast to other leasing companies and financial institutions, we refrain from enforcing debt covenants, requesting collateral (such as intellectual property pledges), or filing liens on your organization. We also differ from equity investors in that we do not demand an ownership stake in your business, which ensures you retain complete control over your operations and future growth.
The conversation here is that some business activity can be financed through debt, while other activities can be funded using equity. Balancing how you fund your biotech is key to long-term success, and leasing is just one way you can use debt to develop your business.
When you enter into an operating lease agreement, your monthly lease payments are considered a business expense and can be deducted from taxable income. This reduces tax liability and increases savings. This is because when you lease equipment under an operating lease, the IRS considers it a tax-deductible overhead expense instead of a purchase.
As a result, you can use pre-tax dollars to pay for the equipment instead of using after-tax profits, resulting in significant cash savings. This makes leasing an attractive option for businesses looking to optimize their finances and improve their bottom line.
However, it’s typical that only revenue-generating companies can take advantage of this tax benefit. It's important to speak with your tax advisor to determine the tax implications of operating lease payments, as the tax treatment of these payments may vary depending on the specific circumstances of the business and the applicable tax laws and regulations.
Equipment finance, or equipment financing, refers to obtaining a loan (or lease) to acquire the necessary equipment for a business. This type of financing allows companies to acquire the equipment they need without paying the full cost upfront. The equipment can be paid for in one lump sum using a loan and then paid back over time (or through monthly lease payments).
While leasing is considered a type of financing, there are some critical differences to equipment leasing vs. financing.
Equipment leasing involves renting equipment for a specific period in exchange for regular payments. At the end of the lease term, the equipment is typically returned to the leasing company, or the business may have the option to purchase the equipment at a reduced cost.
Leasing can be a good option for businesses needing equipment for short-term projects ranging from 12 to 60 months or for equipment that may become obsolete quickly and must be replaced frequently.
On the other hand, equipment financing involves obtaining a loan through a lender, an individual, a financial institution, or a public or private group to purchase the equipment outright. The business will make regular payments on the loan or lease until the equipment is fully paid off.
Financing can be a good option for businesses that need equipment for the long term (think 10 years or more) and want to own the equipment outright eventually. It can also be a good option for businesses that need to purchase equipment unavailable for lease. Different types of loans can be utilized depending on the business’ needs.
One of the main differences between leasing and financing is ownership. With leasing, the equipment is owned by the leasing company, whereas with financing, the equipment is owned by the business once it is fully paid off.
Leasing is often more flexible than financing, as leases can often be customized to fit the business’s specific needs, such as lease length or payment structure. Financing may have more stringent requirements and require collateral or a down payment.
The decision between leasing or buying equipment is a constant topic of discussion, particularly for businesses in capital-intensive industries. You must make careful considerations when procuring new equipment to ensure the best decision is made for your company.
To determine if leasing or buying is the best option, evaluate your financial position, including budget, financial strategy, and equipment needs. Having a clear understanding of these factors can aid in the decision-making process. This includes considering several factors, such as the cost of the equipment, the length of time it will be used, and your current cash flow.
That said, during uncertain economic times, cost-cutting and cash flow enhancement are increasingly essential for biotechs to remain operational. Leasing may be a more practical option than buying for companies looking to purchase or upgrade equipment in the near future.
We’ve reviewed the benefits of equipment leasing, so let’s review the pros and cons of buying equipment.
Pros of buying equipment:
Cons of buying equipment:
Leasing companies offer a wide range of equipment leasing options to meet the needs of different industries and businesses. However, some may specialize in certain areas, such as construction, medical, or office equipment leasing.
Laboratories need a wide range of specialized and costly instruments to perform R&D and manufacturing, including biotech and life science equipment, analytical instruments, microscopes, and general lab equipment like liquid handlers and bioreactors. Leasing can make it easier for biotechs to acquire new or refurbished equipment in a cost-effective manner.
Some leasing companies are generalists but provide lab equipment leases if requested. However, some companies—Excedr is one example—specialize in laboratory equipment and scientific instrumentation.
We have extensive knowledge and expertise in the equipment we lease and can help ensure that you get the right equipment for your needs. We can also provide customized leasing solutions that are tailored to the unique needs of laboratory operations, including flexible lease terms and payment options.
Many healthcare providers lease medical equipment, including diagnostic equipment like MRI machines, ultrasound machines, or X-ray machines that can help the provider take better care of their patients. Treatment, monitoring, rehabilitation, and dental equipment may also be leased. A lot of medical equipment is quite expensive, and it can often make more sense for hospitals and other organizations within healthcare to lease the machinery instead of purchase.
Construction, mining, landscaping, transportation, and energy companies—any company or industry that involves construction, excavation, or heavy transportation—generally use construction and heavy equipment to complete their work.
This type of equipment includes earth moving equipment, such as bulldozers, excavators, and loaders; materials handling equipment like cranes, forklifts, and hoists; and road construction equipment, such as asphalt pavers, compactors, and milling machines—to name a few. Companies will lease these assets for a specified period to complete a construction project.
Farmers, ranchers, municipalities, agricultural cooperatives, and research institutions all rely on agricultural equipment leasing to improve their operational capabilities, efficiencies, and productivity.
For example, a farm may lease agricultural equipment such as tractors, plows, cultivators, and harvesters to improve their farming practices and increase their yields. Other agricultural equipment that can be leased includes planting, irrigation, hay and forage, and livestock equipment.
Vehicle leasing is another common type of equipment leasing. Corporations, government agencies, nonprofits, delivery and logistic companies, and rental car companies all lease cars, trucks, and vans to complete a wide variety of services and tasks. Leasing allows them to use the vehicle without the risks and responsibilities of owning the vehicles outright.
Leasing office equipment is also a popular solution, especially among small businesses, startups, larger corporations, nonprofits, government agencies, and academic institutions. A company may lease office equipment such as computers, printers, copiers, and telecommunication devices to reduce upfront costs, manage cash flow properly, and access the latest technology.
There are several types of equipment leases available. Some of the most common include operating leases (or true leases), finance leases (previously known as capital leases), and sale-leasebacks.
Additionally, municipal, leveraged, and cross-border leases are used in more specific circumstances.
Operating leases are similar to a rental agreement, where the lessee uses the equipment for a specified period and returns it at the end of the lease term. Under this type of lease, the lessor retains ownership of the equipment and is responsible for maintenance and repairs. Operating leases are often used for technology equipment, vehicles, and office equipment, and differ from capital leases.
Finance leases are a type of lease where the lessee is responsible for the maintenance and repairs of the equipment and has the option to purchase the equipment at the end of the lease term. Finance leases are often used for expensive equipment such as aircraft, heavy machinery, and medical equipment.
Sale-leasebacks, or a sale-leaseback, involve a business selling its equipment to a lessor and then leasing it back from the lessor. This allows the business to free up capital while still having access to the equipment they need to operate. Sale and leaseback is often used by businesses with valuable equipment such as manufacturing equipment, vehicles, and technology equipment.
Municipal leases are used by local governments to acquire equipment such as fire trucks, police cars, and heavy machinery. The lease payments are made from the government's operating budget, and at the end of the lease term, the equipment is typically purchased for a nominal fee.
Leveraged leasing: Leveraged leasing is a type of lease where the lessor uses a combination of their own funds and funds from other investors to purchase the equipment. The lessee makes lease payments to the lessor, who in turn makes payments to the investors. Leveraged leasing is often used for expensive equipment such as aircraft and heavy machinery.
Equipment leasing provides several benefits, including access to the latest technology and equipment, preservation of working capital, operational and financial flexibility, lower risk regarding maintenance and repairs, improved cash flow, and certain tax benefits—to name a few. It is an excellent option for biotechs looking to reduce costs and improve their financial position.
These benefits can also help biotech startups unlock growth, stay competitive, manage cash flow more effectively, and focus on their core business operations while still acquiring the necessary equipment.
If you’re interested in leasing new or refurbished lab equipment from the manufacturer of your choice, let us know. You can also learn more about our leasing program and review the types of equipment we offer on lease.