Advantages of Equipment Leasing
You can conserve capital with 100% financing. If you invest the conserved capital in your business and compound the earnings, you offset a substantial portion of the lease payment.
MAXIMIZE CREDIT LINES
When you borrow funds to purchase equipment it often reduces the available lines of credit by a corresponding amount. By increasing liabilities, you decrease available credit. This can severely restrict your firm’s access to working capital. Because lease payments are shown as a footnote on your balance sheet, banks treat these obligations differently. Short term credit is retained.
INFLATION CAN WORK FOR YOU
You make inflation work for you, not against you, by paying with tomorrow’s progressively less valuable dollars. If you buy with today’s dollars, the tax dollars you recover tomorrow through depreciation are progressively less useful to you
EXPAND YOUR BUDGET
You expand your budget by freeing capital funds to build inventory, add space or personnel, or enlarge your business.
Through leasing you also protect yourself from fluctuations in the money market. Since most leases are quoted at fixed rates, the payments remain the same throughout the term of the lease. Planning for future growth and development becomes more practical.
THE BOTTOM LINE
In a nutshell… lease financing gives you 100% of the proceeds to finance the equipment. A bank loan will usually require as much as 30% of the loan amount be retained by the bank as a down payment. In effect, you only receive 70% of the proceeds of your loan!! Leasing allows a firm to budget its expenses to income. If a piece of equipment produces income or savings as you use it, why pay for those savings before they are realized?
Leasing allows you to use the equipment while you pay for it. You enjoy a better profit picture when current income covers current expenses. It is the USE of equipment which is productive, NOT its ownership!!
PLAN FOR GROWTH
Bank borrowing and leasing should complement each other. Bank loans are most economical for short-term needs. Leasing is most economical for long-term equipment needs. Leasing preserves your bank lines.
MAXIMIZE TAX ADVANTAGES
You may reduce your current tax obligations. If you treat lease payments as fully deductible operating expenses, they can be subtracted from pre-tax income. With a lease term shorter than the useful life the system, the benefits can effectively reduce your tax obligations. In contrast, your interest and depreciation tax benefits as an owner are typically claimed over a longer time and are less in a given year