There are numerous reasons to consider equipment lease financing in your business, but for the sake of brevity, we’re only going over the most common reasons we find that business owners and managers utilize equipment leasing.
Deferral of Tax.
When you purchase an asset, you are required to pay the respective sales taxes at time of purchase. With a lease, the leasing company is the owner of the asset at time of purchase, so they pay the sales tax. You pay sales taxes on each lease payment, deferring your tax liability years into the future.
As compared with equipment loans which tend to run around 36 months, equipment leases are more readily available for terms of 5 years and beyond, depending on the asset, age, and condition.
No Down Payment Required.
In many cases, the leasing company will only ask for one or two payments in advance, greatly reducing the drain on cash flow.
True 100% financing
Unlike traditional equipment loan products, most lease programs will allow you to include the costs of installation and freight into the lease financing total, once again saving on your out of pocket costs. The ability to finance these “soft costs” can be the difference between making the capital investment or not.
Because the lease company owns the underlying asset and specializes in financing the asset type, there is considerably less red tape to go through in the application process. And for smaller ticket items, approvals can be accomplished in a matter of hours with very little paper work involved. More support is required for larger purchases, but compared to a traditional bank application the degree of complication and time required pales in comparison.
Conserve on cash.
In addition to the cash saving features mentioned above, most leasing companies will allow you to purchase an asset for cash and then turn around and sell it to the lease company in return for an equipment lease. There may be times when you can get the best deal with a cash purchase. And sometimes a great deal may not be around before you get financing approved. So this sale and lease back process puts cash back in your hands after the transaction has been completed, allowing you to take full advantage of a cash transaction.
In some cases, you may have even had to use your line of credit to buy the asset in the time you had to work with. Similar to the above cash purchase, the acquired asset can be sold to the leasing company in return for an equipment lease with the proceeds from sale being used to bring your line of credit back down and making the funds available for other operational requirements.
If you’d like to get more information on equipment leasing, please give us a call and we’ll get all your questions answered.