 20 Reasons To Lease Equipment (Leasing By The Numbers)
1. Use of Equipment Leasing Is the Use of an Asset. No
business pays its employee’s salaries in advance; businesses pay
people as they contribute. It should be no different with a contributing
asset like business equipment. Leasing enables you to pay as youm use.
2. Fixed Payments. Monthly payments on a lease are
generally fixed for the entire term of the lease. This is a distinct
advantage in times when many financing transactions have floating interest
rates. Knowing in advance what your payment will be enables you to budget
and manage equipment dollars for a long time.
3. Longer Terms. Many banks only lend money short term, usually
12 to 36 months. In lease arrangements, the term can be as long as 60
months, and in some cases even longer.
4. Protection From Obsolescence. Industry analysts say
technological advances could make today's equipment obsolete in a very
short period of time. This is especially true with computers.
Leasing lets you match the term to what you perceive to be the
equipment's useful life. You pay for the equipment only for the
period of time that you feel the equipment is really working for you. Many
lease plans also have a provision for upgrading as required.
5. No Down Payment. Most traditional financing options
require a sizable down payment. On cash purchases this can be as
much as 20 percent. No down payment is required on a lease.
6. 100 Percent Financing. Traditional methods of financing
usually do not include “soft” items such as installation and
freight. A good lease transaction includes both of these, thereby
allowing you to finance the total package.
7. Flexibility. Leasing provides a lessee with greater
structuring flexibility. The leasing industry is typically populated by
aggressive entrepreneurs who find ways to structure lease transactions to
fit the needs of their customers. This gives a lessee the
opportunity to make the most of such lease structuring variables as number
and amount of advance payments, purchase option, etc.
8. Simpler Than Bank Loans. Leasing programs and procedures are
designed to take the red tape out of financing capital equipment for business.
9. Purchase or Renewal Options. Most lease arrangements
allow customers the option to purchase at a stated amount or at fair
market va1ue, or to renew the lease at a reduced monthly' payment. The
lease structure determines which of these options is available.
10. Conservation of Capital. Because of the sizable cash outlay
involved in purchasing new equipment, many businesses lease to conserve
capital. Money is better used to buy inventory, advertise and hire
personnel than to purchase equipment that is worth less and less as time
goes by. If you are in a business where you have important
alternative uses for money on hand, leasing always wins out in the "lease vs. buy” analysis.
11. Easier Cash flow Forecasting. Leasing, which is simply
dollar-per-month financing helps equipment users fit a monthly payment
into their budgets. Because payments are fixed, users can continue to intelligently budget into the future.
12. Ability to Work Within Budget Limitations and Around Corporate
Purchasing Committees. Subsidiaries of large corporations
or department managers of small companies have the authority to acquire
equipment they need, but only if it fits within operating budget
guidelines. Many managers decide to acquire needed equipment via leasing
because it allows them to have the use of the equipment (which is all they
really want) and still work within operating budget limits. They
don't have to go to capital expenditure committees for approval
13 .Tax Benefits. Lessees can usually deduct their monthly
lease payments as operating expenses. This clearly reduces the net
cost of the lease. Leasing is generally advantageous to most
businesses. Nevertheless, it's always best to talk to your tax
accountant first. Under the current alternative minimum tax rules,
ownership of equipment triggers depreciation, which is a tax preference item.
14. Special Programs. Marketing and pricing programs can
be customized to reflect the financing needs of specific industries.
15. Master Lease. Businesses with multiple locations or
divisions can derive benefits from a master lease agreement. An MLA is an
agreement between the lessee and lessor as to the terms and conditions
under which they will do business. (It usually, does not include pricing
information.) The advantage of agreeing to terms and conditions with a
selected lessor is that the acquisition process is simplified on all
future installations because this time-consuming exercise - enjoyed only by attorneys -is eliminated.
16. State-Of-The-Art Equipment. When dollars are
already budgeted, managers who need newer equipment can conveniently
acquire that equipment on a dollars-per-month basis since me monthly
payment precedent usually has been established.
17. Additional Lines of Credit. When equipment is bought
with borrowed funds, credit lines with a lender are reduced. When
equipment is leased, a business has, in fact, established an additiona1 line of credit with its lessor.
18. Special Advantages for Municipalities. Some leasing
companies have true municipal 1ease programs that pass on the benefit of
the tax-exempt status of the lessor’s income to the lessee in the
form of reduced monthly payments. These programs also include a fiscal
funding clause that a1lows the municipality to cancel the lease contract
if funds are not a1located to continue.
19. Use Lessor for Other Equipment Needs. While some companies
have captive finance companies to handle only their equipment, other
lessors are in a position to lease just about anything. If you have
the good fortune of selecting a full-service vendor/lessor, all your
equipment, from photocopies to forklift can be handled by someone with
whom you have already developed a business relationship.
20. Respond to New Business Opportunities. Leasing your
new machinery and equipment will a1low you to preserve your existing cash
flow to respond to new business opportunities. The profits generated from
the productivity of the equipment is usually greater than the lease payments. |
