Why I Lease?
- Leasing offers flexibility and can be structured to fit your individual needs.
- Leasing allows you to conserve your cash flow. We dont require a down payment, and we offer 100 percent financing.
- Leasing offers tax benefits by being able to deduct your payment as a rental expense.
- Leasing allows you the option to purchase the equipment at the end of the term.
- Leasing allows business owners to pay for the equipment they use today, with the revenue they generate tomorrow.
To Lease or to Buy?
Here is an article on Leasing from Business Wire.
Association survey of the Small Business Administration’s State Small Business Contest winners, 86 percent lease equipment, for reasons that range from budgeting and establishing consistent cash flow to the ability to upgrade equipment more frequently.
However, although equipment can be leased to handle needs in almost any industry, many small to mid-sized business owners are unsure how to determine whether this option is right for them.
Common types of leases
“Most business owners believe they need to own their equipment,” says David Wolf, CEO of Hennessey Capital Leasing. “But it’s worth noting that the benefit of many assets derives from use, not from ownership, making the financial implications the most important consideration.”
Wolf adds that leasing provides greater flexibility in financing options for asset acquisitions and business expansion. “Every situation is unique, so the key is trying to find the right structure to fill that particular need.”
The two most common lease arrangements are capital leases and operating leases. A capital lease, which Wolf refers to as a “loan in disguise,” allows the lessee to depreciate the asset and write off the interest, while avoiding a large down payment. Capital leases appeal to businesses that ultimately plan to own the equipment but prefer to preserve their banking relationships and working capital for other ventures.
On the other hand, operating leases can be an ideal option for companies that regularly upgrade equipment. Operating leases provide a hedge against obsolescence: the ability to return the equipment to the lessor at the end of the term. This frees the lessee from any obligation and can facilitate the upgrade process. These leases also tend to yield lower payments and are expensed, so they don’t appear on the balance sheet as long-term debt. One of the most attractive features of an operating lease structure is the tax benefit, which allows the lessee to write off the entire amount of the lease payment. “In capital intensive industries, it can make a lot of sense to structure something as an operating lease,” says Wolf.
Optimizing Capital Equipment
Many physician group practices struggle over whether to buy or lease equipment. While purchasing has been the traditional method of acquiring equipment, leasing often can be more cost-effective. Conducting a lease-versus-purchase analysis can help group practices arrive at the most cost-effective
decision. Careful consideration of the alternatives can lead to the best use of the group’s resources to meet its financial goals.
Whether to lease or buy medical equipment is not always a clear-cut decision. Purchasing is the traditional method of equipment acquisition for most group practices, and many continue to use cash to acquire needed equipment.
The pressure to reduce healthcare delivery costs, however, has made more stringent reviews of capital equipment acquisitions imperative. As a result, more group practices are choosing to lease medical equipment. The advantages of leasing include flexibility, convenience, and protection against technological obsolescence. And, in many cases, leasing can be more affordable than purchasing.
Decision Factors
Analysis of major capital equipment acquisitions needs to go beyond a simple return on investment (ROI) or hurdle rate analysis and consider other factors, including the estimated technological life of the equipment and the group’s financial position.
Technological life of the equipment. The equipment’s useful technological life should be considered in light of the group’s long-term goals. Equipment that is projected to become obsolete over an anticipated period of use is a good candidate for leasing. A properly structured lease allows the user to shift the risks of technological obsolescence to the lessor and acquire new technology at the end of the lease term. The lease also allows the user the flexibility to purchase the equipment or renew the lease if the group decides the equipment can continue to provide the required level of performance . Click here for more.
Obtaining New Equipment
Leasing is a popular, cost-effective means of acquiring industrial equipment. You rely on equipment every day to operate and grow your business. However, the value of that equipment comes from using it, not owning it. By leasing, you transfer uncertainties and risks of equipment ownership to the lessor. This allows you to concentrate on using equipment as a productive part of your business not a drain on the bank account.
Factors to Consider
Significant factors to consider when choosing to lease or buy equipment are:
- Your cash — Hold or spend it; leasing preserves capital for other uses whether they are known or those that are unforeseen.
- Cost level — Instead of a large upfront dollar outlay when purchasing equipment, leasing minimizes it. Another way of asking that question is: “Do I have enough extra capital to spend today for something that will make me money (pay back) in months and years to come?”
- Equipment value — There is little financial benefit for leasing, when acquiring equipment under $5,000, due to fees ranging from $150 to $400 and higher rates for lower dollar lease amounts.
To Lease or To Buy
Owning a piece of equipment does not necessarily translate into making profits. The use of a piece of machinery to make a product is what makes a company income. Leasing provides an easy, affordable method of using equipment that allows a monthly payment without obtaining a bank loan or worrying about budget justification. Leasing also keeps your other lines of credit open and total system financing, including delivery and installation, can be spread over the lease term. When acquiring new equipment, leasing provides advantages such as:
- Conservation of cash: Leasing doesn’t require the cash outlay of a purchase.
- Longer terms and lower payments — Lease terms can be flexible up to 84 months.
- Periodic equipment updates — Reduce obsolescence risks with life cycle management.
- Manageable upfront costs — Little or no down payment.
- Purchase options — At lease end, purchase at agreed upon price or return the equipment.
- 100 percent financing — “Soft costs” such as installation, etc., can be added.
- Tax advantages — As an expense, lease payments may reduce tax liability.
- Simplified documentation — Minimal paperwork.
- Customized lease options and payment plans — Alternatives to meet your cash-flow needs.
- Time value of money benefits — Acquire equipment with today’s cheaper dollars.
Thomas Strickfaden, vice president, National City Manufacturing Finance
Considerations When Leasing
Leasing offers a great alternative in preserving customer’s cash flow because it does not require a large cash outlay. A minimal down payment consisting of a first and last payment is usually required in advance, and the monthly payments remain the same for the duration of the lease.
Beacon Leasing understands the equipment and its use, which in turn generates fast and easy approvals.
Many accountants advise their customers to lease, as it can offer distinct tax benefits and preserves their bank credit lines.
Leasing rates are competitive and comparable to bank financing. Plus, electronic documents can be generated the same day as the approval so you can watch a machine demo, apply for credit, have documents signed and receive a purchase order all in the same day.
Benefits of Equipment Leasing
To put it simply…the benefits of equipment leasing are:
- Equipment leasing conserves working capital
- Equipment leasing provides 100% financing for equipment acquisitions
- Equipment leasing keeps existing bank and other lines of credit open
- Equipment leasing provides an Additional line-of-Credit for equipment acquisitions
- Equipment leasing helps to overcome budget restrictions and limitations
- Equipment leasing helps to maximize cash-flow
- Equipment leasing does not require down-payments
- Equipment leasing may provide tax savings
- Equipment leasing may provide off-balance-sheet financing
- Equipment leasing provides specific equipment, chosen by the Lessee
- Equipment leasing provides equipment acquired from suppliers chosen by the Lessee
- Equipment leasing protects against operating obsolete equipment
- Equipment leasing hedges against inflation
- Equipment leasing is flexible financing that can be matched to specific customer needs
- Equipment leasing makes a few cents work like dollars
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