Equipment and Asset Leasing
If you don't understand the difference between a lease and a loan, you are not alone. Many business owners continue to finance their equipment the "old fashioned" way, through loans, because they don't fully understand the potential benefits of leasing their equipment. These benefits can be seen in four important areas, initial cost, equipment obsolescence, tax benefit and off balance sheet financing. Because of these benefits, many business owners are realizing that they do not need to own their equipment in order to conduct business. They only need to use it.
The first thing you need to know about equipment leasing is that it is 100% financing. Because a lease is essentially a "rental" of equipment, there is usually no down payment required to access the equipment your business needs. This directly contrasts most commercial bank equipment loans, which require a minimum of 10% and as much as 50% down payment. By comparison, most equipment leases will require only the first and last payment in advance of delivery. Even if you only need a small amount of equipment, this can result in a tremendous reduction in the "out of pocket expense" necessary to upgrade your equipment. This gives you the opportunity to put thousands of dollars of working capital back into your business, instead of giving it to your banker.
Another benefit of leasing your equipment is the ability to avoid "economic obsolescence". This occurs when business equipment either cannot keep up with the demands of the market or lacks the technology to help the business remain competitive. Leasing your equipment helps to avoid obsolescence by allowing you to upgrade every few years. In other words, if the equipment appreciates, buy it. If the equipment depreciates, lease it.
In addition to the initial cost and obsolescence, leasing your equipment can also provide your business with a substantial tax advantage. While you should always consult with your tax advisor first, most equipment leases can be structured so that you can write off 100% of the annual lease payments. By contrast, current tax laws only allow a business to write off the interest paid on loans. However, because a lease is a rental and the business is only using the equipment, the business can usually write off all of the monthly lease payments just like any other legitimate business expense. Once again, this can result in thousands of additional dollars in working capital being put back into your business.
The last major advantage of leasing your equipment instead of buying is that leasing allows you to not show the equipment on your balance sheet. Once again, this is because the equipment is being rented and therefore actually belongs to a different company than the one that is using it. For this reason leases are often referred to as "off balance sheet" financing and this can be a tremendous advantage to many businesses both large and small. If you are considering selling your business, this may also make your company more attractive to potential buyers since you will be showing less debt on the balance sheet.
OConnor Consulting offers both in-house leasing, and works with national leasing companies to find the most attractive options for clients wishing to lease. We can help you determine if leasing your equipment is right for your business. If you should decide to lease, we can usually get the equipment you need with just a simple, one page credit application. In many cases we can have the new equipment on site in as little as a few days.
Through our networking, we can also offer the service of sourcing out the equipment that you require. Let us know what you need, and we will find it for you.
Complete our No Obligation Loan and Lease Application Form, and be assured of full confidentiality. One of our business Finance Consultants will contact you within 48 hours.