Equipment Leasing

Equipment Leasing

Leasing can take two forms: A loan that the borrower uses to lease equipment from an independent source, or a direct lease from a company that owns the equipment. In the first case, the length of the loan is tied to the lease term. Frequently leased assets by small businesses consist of equipment, vehicles, real estate, or facilities such as a warehouse. Banks typically require an operating history before engaging in leasing agreements. Some of the benefits of equipment leasing are:

Equipment Leasing Conserves Working Capital - Your cash is retained for more profitable uses such as inventory discounts, marketing, additional staff and additional production capability.
Equipment Leasing Offers Tax Benefits - Properly structured lease payments are 100% tax deductible business expenses paid from pre-tax earnings instead of after tax profits.
With Leasing You Can More Accurately Forecast Income Against Expenses - Leased equipment cost are predictable and can be more easily measured against the income new equipment is expected to produce.
Leasing Allows For Replacement Of Equipment As Needed - Leased equipment is expensed over a fixed period of time and is more easily replaced before obsolescence and physical deterioration take place, so devaluation is avoided.
Equipment Leasing Provides a Hedge Against Inflation - Lease payment are based on the dollar's current value. These payments remain constant regardless of the future effect inflation has on currency value. Remember 1980, when interest rates skyrocketed from 9% to 21.5% in a single year? Unlike bank lines of credit with variable rates, lease payments are fixed regardless of what happens to the market tomorrow.
Leasing Has Operational Advantages - The advantages offered by the use, rather than ownership, of capital equipment can significantly improve the profitability of a business. Profits are produced by the use of equipment, not ownership.
Leasing Has Financial Advantages - Capital budget restrictions, new tax reform preference items and extension of current credit lines are some of the most common reasons that many commercial industries look to lease financing as an extremely attractive alternative to paying cash for new capital equipment.

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