There are many reasons to choose leasing. Cash flow is important to business people today. You may already know that the top three financing options in today’s marketplace for acquiring new and used equipment are cash, loans, and leasing. But did you know why leasing has become the most popular option?
Consider the following:
Cash is king and using cash for equipment purchases takes away vital cash for day to day operations, salaries and other expenses in addition to the opportunity cost of losing access to your cash.
Bank Loans may offer competitive rates but require large down payments, extensive documentation, and restrictive loan covenants that may restrict your ability to borrower in the future.
Leasing is a flexible and easy process. There are a variety of leasing products available that will address your business’s unique needs; including cash flow, budgeting, buy out options and seasonality of your business.
Following are more reasons to choose leasing:
Off-Balance Sheet Treatment
When your company purchases equipment, it capitalizes the asset on its balance sheet. If loans were used to finance the purchase, the company records a corresponding liability. The capitalized cost is amortized over the economic life of the equipment resulting in depreciation expense. Depreciation expense, in addition to interest expense, are recorded on the company's income statement. When leases are classified as operating leases for financial statement purposes, neither an asset, nor a liability appears on the company's balance sheet, and the only expense on the income statement is the lease rental expense.
Capital Preservation
Leasing helps you conserve working capital. Most leases require little or no down payment, and the cost of the equipment, related sales or use taxes and incidental charges can be included in the lease payment. Your company can spread the cost of acquiring equipment over a fixed term with predictable lease payments. Lease payments are an affordable and generally less than payments under a conventional loan.
Flexibility and Convenience
Leasing is a flexible and convenient method of acquiring equipment. Documentation can be standardized so that subsequent transactions can be completed easily. The size of leases can be controlled to stay within your budgetary approval authority levels. The lessor assumes the vendor payment process under taken by your accounts payable department when you purchase equipment outright, insulating you from paperwork. Leasing simplifies accounting and the preparation of cash flow projections.
Transfer Ownership Risk
The lessor is the owner of the equipment insulating you from the risk of equipment obsolescence. Today technology is changing at a rapid pace, making technologically-sensitive equipment risky to own.
Budget Management and Forecasting
At times a division of a company may not have sufficient funds to purchase equipment outright. It may be onerous or time-consuming for the department to undertake the steps required to obtain additional capital. By leasing, the department can pay the lease payments out of its operating budget. Operating expenses generally require short approval periods and are obtained from accessible departmental management.
Enhance Return on Assets
The lease expense on an operating lease is less than the depreciation and interest expense for the same equipment if acquired using debt. Operating leases lower the asset base and increase reported earnings thus enhancing your company's return on assets (ROA)
Types of Leases
· Finance programs - $1.00 purchase option
· Tax oriented leases - 10% and fair market value of purchase options
· Pre-approved equipment lease line of credit
· Operating leases with year-to-year rentals
· Sale and leaseback programs
· Refinancing of existing leases and loans
· Municipal leases
· Vendor progress payments
· Step and skip payment programs
· SBA and economic development programs
· 100% financing
· Balloon payment program
· Fixed rates
· Industry familiarity
Express approvals with 24-hour turnaround for transactions under $100,000 - no financials required.
