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Lease vs. Own...
In deciding how to pay for an equipment acquisition, it is important to remember...
It is the use not ownership of equipment that generates profits. Ownership only makes sense if there is potential appreciation, as with real estate, intellectual property or collectables. Ownership of today's obsolescence-prone technology does not offer such benefits. Most computers, for instance, are essentially worthless on the open market in about two years.
Furthermore, equipment today becomes obsolete at a faster pace than ever before, so your capital equipment inventory becomes worth less and less, faster and faster. Ownership is, therefore, of even less value.
Leasing Is Flexible...
Leasing allows you to write off the costs of your present equipment as you use it, and to trade up to new technology when the time comes.
Leasing is an extremely flexible tool. It can be structured as anything from a rental (think "car rental") to a time purchase (think "lease to own"). For this reason, there are many different benefits of leasing and an equal number of motives as to why people lease.
9 other Reasons to Lease...
Article 179: Through a quirk in the tax laws, it is
now possible to "get paid in advance" to add equipment. Small businesses can
write off up to $250,000 of equipment the year they put it in service. It is not
necessary to depreciate it over several years. By leasing that equipment, you
can have the government pay it's share in front, essentially getting free use
for over a year.
Example: You buy a $100,000 piece of equipment and finance it on a 60 month lease/purchase contract with a monthly payment of about $2200. If you're in a 34% bracket, your first year write-off comes to $34,000, enough to make the first fifteen lease payments (34,000 2200 = 15.45).
Direct Tax Expensing: For companies not qualifying for or choosing the Article 179 alternative, lease payments are written off as made, eliminating the need for depreciation schedules and allowing faster write off. The result of this is more cash freed up for other uses than would be available in a purchase/depreciate environment..
"100% Plus" Financing: leases can cover everything you need to make your equipment work for you. This includes software, installation, related leasehold improvements, training and even some supply items. All of this reduces your initial costs to minimal levels, letting you earn profits from your new equipment faster.
Proven Alternative: Leasing is a well accepted concept. Over 32% of all equipment acquired in the US is acquired under a lease contract. This makes leasing the single largest form of external corporate finance in the country. Over 80% of companies ? from small start ups to "Fortune 500" giants - lease some or all of their equipment.
Variable Payments: Lease payments can be matched to project revenues; seasonal cash flow variations; budget limitations and other challenges. The need to divert cash, or add to loan balances is removed. Our leases can be structured with no payments for up to six months, longer amortizations, and PUTs, TRACs or other optional alternatives to lower payments even further.
Financial Reporting Advantages: We can structure leases to meet FASB requirements for "off balance sheet" accounting treatment. Since the total committed lease payments now show as a footnote rather than as a liability, the overall ratios are improved and there is less risk of lending covenant violations.
Protecting Bank Lines: Banks are great for short term needs and you should use them in that way. An available line of credit is an extremely valuable tool to address unforeseen emergencies, therefore reducing those open lines by using them to finance equipment can be dangerous. Furthermore, bank terms, appetites and flexibility on equipment transactions range from "less than optimum" to "downright difficult". Let your bank do what it does best.
Avoiding Bank Restrictions: Leases don't include blanket liens, restrictive covenants, rate escalator clauses, "call anytime" provisions, compensating balance requirements (a five year 6% loan with a 20% compensating balance requirement actually yields about 15.7%) or any of those other nasty little surprises that tend to be part of traditional lending arrangements.
Simple and Easy: Some leases feature simplified documentation, easy one page applications, no financial statements in most cases, accelerated approval times and more. All designed to get you the equipment you need without delay.