An Alternative to Buying
Many businesses use a lot of expensive equipment in their daily activities, and many new and growing businesses do not necessarily want to buy this equipment outright. Leasing is an option that is easier on a business’s finances and allows it to plan better for large equipment acquisitions.
The benefits of leasing as opposed to purchasing equipment with a loan or with cash are numerous. Leasing can involve a simpler application process. It also frees up a business’s capital and hedges against inflation. Tax advantages are possible because leasing requires that you make monthly payments, and it is relatively easy to arrange add-ons and trade-ups. Credit lines are preserved and monthly payments are fixed, although the monthly payment schedule may be altered at the request of the borrower, in order to make payments larger during the season in which the business usually does its best, and smaller during the off-season. Cash is also preserved, which can then be used for other expenditures or investments. In many cases, no down payment or collateral is required to lease. Leases are therefore easier to budget for and often do not involve any extra fees.
Common Concerns
Several myths exist about the value of leasing equipment. One common misconception is that you must have perfect credit to lease. It’s true that having good credit can increase the likelihood of lease approval, but many other factors such as time in business, average business checking balance, and comparable business credit are also considered.
Many people also think that leasing costs more than traditional financing. In most cases, it can actually cost less. Up front costs are usually limited to the first and last monthly investments and the tax advantages result in payments that are typically lower than with traditional financing. Leasing also preserves cash flow.
It’s also untrue that only new equipment can be leased; most equipment leasing offers used products. This allows terms to be tailored to fit customers’ needs. Contrary to popular belief, leasing is also not difficult- the application and agreement completion processes are often easier than those of traditional financing methods.
Financing Resources
Many institutions exist that will provide information and help for people and businesses who are considering equipment leasing and other choices. Most financial institutions can provide some information and possibly refer customers to other sources. Industry-specific organizations can often point people in their particular industries in the right direction. Several organizations that are concerned specifically with equipment financing and leasing also exist, such as the Equipment Leasing and Financing Foundation, whose Web site provides research and reports, and links to other relevant Web sites. The United Association of Equipment Leasing has annual conferences and expositions, and its Web site features press releases and announcements. The National Association of Equipment Leasing Brokers is a great resource for information about brokers and also has an extensive Web site.
In general, leasing is a great option for businesses who would like to finance their equipment in a way that frees up more cash and credit than buying it outright would allow them. There are many benefits and few drawbacks to leasing, and a wealth of information is available from a wide variety of resources for anyone who is seriously considering it.
By Kristin Cleveland