Leasing vs. Buying Equipment

What Are The Advantages of Leasing Versus Buying Equipment ... Because Leasing Offers Many Considerations as Well as Tax Benefits.

Four out of five companies have used leasing to acquire equipment, according to the Equipment Leasing Association.......But what exactly is equipment leasing?

It's a simple agreement between the seller of the equipment (the vendor) the leasing company (the lessor) and the end user (the lessee) covering the use of the equipment, for a fee.

The function of the leasing company is to purchase the equipment from the vendor, then lease it for a specified time and under specified terms to the lessee. 

One of the most straightforward advantages of leasing is that conventional business wisdom deems it prudent to buy assets that will appreciate in value, such as real estate, and lease assets that will depreciate in value, such as machinery and equipment. For what other reasons do companies lease rather than purchase equipment?

Conservation of Working Capital: Equipment Leases allow the maximum conservation of working capital to:

*   Maintain cash for operating expenses

*   Acquire equipment not foreseen or forecasted in your budget

*   Conserve  borrowing capacity for other business requirements

Finance 100% of the Costs:  Leasing offers 100% financing of the entire equipment package, including "soft costs" such as training, installation, software, supplies and shipping. (Some restrictions apply)

Equipment Pays for Itself By using a Lease, your equipment has the ability to pay the monthly lease payment from the income it generates in monthly earnings or cost savings.

Conserve Bank Credit Lines: Leases avoids the use of your cash or short-term bank lines, thus conserving operating funds and borrowing capacity. Leasing preserves working capital, net worth and other resources that is commonly required for most other types of intermediate and long term financing.

Fixed Payments: There is no need to worry about rising interest rates. The monthly lease payment does not change. This makes planning and financial budgeting easier.

Flexible Leasing Options: leases' are flexible as to the amount financed and allows you to create your own payment structure to meet the needs of your business. Longer terms mean lower payment. You can match your payment with your cash flow.

Collateral Requirements: Only collateral requirement is the equipment being financed.

New Technology Advantage: Leasing can help keep your equipment up to date. It allows you to acquire the latest technology to remain efficient and profitable.

Establish Credit History: New businesses or companies with inconsistent history can establish a credit history allowing them to lease / purchase more equipment as their business grows. Leasing provides a new source of funds

Tax Advantages: - 10% Purchase Option: Potential tax advantages also exist. Lease payments may be fully deductible as an operating expense. In general the payment on a "true lease" (fair market value or 10% buyout option) may be recognized by the IRS as an operating expense for tax purposes. This type of lease could possibly reduce your tax liability. It is usually treated as a fully-deductible operating expense.

Tax Advantages - Section 179 - "EFA" Equipment Finance Agreement or $1.00 Purchase Option Section 179 is a special tax deduction allowing you to recover all or part of your equipment cost in the year it's put into service. 

Equipment must be for business use. This is a method to quickly write-off the equipment instead of depreciating the equipment over the life of the equipment. In 2013, companies are allowed to write-off as much as $500,000 of equipment acquired over the course of the year.

Be sure to consult with your accountant to determine which option provides the best tax benefit for your company.

Why Lease, when I can go to the Bank? Most companies that lease maintain their bank lines for other needs other than capital investments. Banks often require a down payment. 

Banks have stricter documentation and fiduciary guidelines, so that the process can be slower and the additional charges are usually higher. 

Other disadvantages often include the requirement of additional security or collateral (both business and personal), variable interest rates and an unwillingness to finance soft costs such as installation, software, training and shipping.

Convenience And Quick Approval: There are no loan committees or lengthy investigations. Most applications can be processed in 12 to 24 hours after requested information has been submitted.

Our certified experts are here to answer any questions and offer you a FREE, no obligation evaluation of your equipment needs. 

Contact:

Robert Bruton
888-658-6669