If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

Equipment Leasing – an Often Over-Looked Financial Tool for the Cash-Strapped, Small Business Owner…………….by Debra Maples

Cash Flow or preserving your Working Capital is the name of the game (wouldn’t you agree?) when it comes to “staying” in business!

Then, tell me WHY so many small business owners put out mega bucks on equipment and use up their valuable “cash” assets? Sure, you “own” it, but where does that get you in the long run?

Let’s explore some facts and benefits of equipment leasing vs. outright purchase of the equipment (usually via bank or other loan),

FACT: A lease is a simple agreement between the owner of equipment (Lessor) and the end-user (Lessee) providing for the exclusive use of the equipment for a monthly fee. Because leasing provides more benefits than ownership does, it is one more “financial” tool for the toolbox of the small business owner.

FACT: Leasing is the most widely used method of equipment financing in the United States, accounting for approximately one-third of all capital investments.

FACT: 80% of all small businesses lease some or all of their equipment.

BENEFITS OF EQUIPMENT LEASING VS. OUTRIGHT PURCHASE:

Aids in the Growth of Your Business

A growing business is apt to face the dilemma of limited cash flow and the need to add equipment. Leasing can solve that problem with the addition of that equipment with almost no capital expenditure.

Ease of Application and Fast Processing

Application only required for smaller leases (usually up to $75,000) with no financials or tax returns and processing is usually within days.

100% Financing Conserves Working Capital

All equipment costs, installation, delivery, etc, can usually be included in the lease. You choose the equipment from the vendor you wish and retain all warranties and guarantees. Usually all that is required is a couple of monthly payments up front.

Avoids Loan Restrictions

Leasing leaves your other credit lines intact.  Normally, your banker will not reduce your credit lines when you lease; they may do so when you borrow.  Leasing preserves your access to cash!  Instead of a liability on your financial statement, the lease can be shown as a footnote, maintaining healthy financial ratios.  Keep your cash and credit lines in reserve for when you need them for inventory, advertising, payroll, taxes, or to take advantage of supplier discounts and other opportunities.

Capital Management Tool

Would you pay your employees’ wages several years in advance?  Of course not!

Paying cash for equipment that will provide many years of service is like paying an employee for years of service in advance! 

Leasing equipment is comparable to hiring employees.  Pay for your equipment as it produces income and provides benefits and service to you.

Often the monthly payment will be less than the profits generated by the leased equipment.  And you have the option to own the equipment at lease end (usually for 10% of its original cost).

Provides More Options

Equipment obsolescence can interfere with your continuing profitability.  Upgrades, modernization, and technological advances all become easier with leasing.  When change occurs, you’ll be glad you leased your equipment!

May Provide Tax Savings

Depending on several variables, leasing can provide tax benefits to you. Recent changes in tax laws have been made since President Bush has been in office, however, so that the tax advantages may not be as good as in previous years. You should speak to your accountant about this.

Overcomes Budget Restrictions

Leasing is an operating expense and not a capital item with predictable monthly payments.  This allows you to budget your equipment costs up to 5 years in advance and avoid fluctuations common to “prime plus” loans.  A fixed-rate leasing program enables you to make regular, equal payments that actually get cheaper using tomorrow’s dollars.

Should Every Business Lease

Every business should at least consider the benefits of leasing in the context of tax savings, capital management, and the leveraging and preservation of working capital and cash flow. The more you know about leasing, the better decision you can make.

Our leasing experts will be happy to go over every aspect of a lease and compare it to comparable alternatives to help you make the best and most-informed decision for your particular business’ needs.

So, why don’t you consider adding equipment leasing, along with the other financial tools we’ve been discussing recently, into your small business’ financial toolbox and see how it can help your cash flow better in your business?!

Share This


Tags: ,

No Comments »