Leasing is convenient and cost-effective way of acquiring machine tools to increase today's demand and get the latest technology. Below are twenty reasons that add up to one pretty convincing argument. But in fact, these twenty tips are only a thumbnail version of what leasing is all about!
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20 Reasons to Lease Equipment
- USE OF EQUIPMENT IS THE USE OF AN ASSET. No business pays its employees' salary in advance; they pay people as the contribute. It should be no different with contributing asset like business equipment. Leasing enables you to pay as you use.
- FIXED PAYMENTS. Monthly payments on a lease are generally fixed for the entire term of the lease. This is a distinct advantage in times when many financing transactions have floating interest rates. Knowing in advance what your payments will be enables you to budget and manage equipment dollars for a long time.
- LONGER TERMS. Many banks only lend money short term, usually 12 to 36 months. In lease arrangements, the term can be as long as 60 or 72 months, and in some cases even longer.
- PROTECTION FROM OBSOLESCENCE. Industry analysts say today's equipment could be technologically obsolete much quicker than before, due to developmental advances.
- NO DOWN PAYMENT. Most traditional financing options require a sizable down payment. On cash purchases this can be as much as 20%. No down payment is required on some leases.
- 100% FINANCING. Traditional financing usually do not include "soft" times such as installation and freight. A good lease transaction includes both of these, thereby allowing you to finance the total package.
- SIMPLER THAN BANK LOANS. Leasing programs and procedures are specially designed to take the red tape out of financing capital equipment for businesses.
- FLEXIBILITY. Leasing provides a lessee with greater structuring flexibility. The leasing industry is typically populated by aggressive entrepreneur types who find ways to structure lease transactions to fit the needs of their customers. This gives the lessee the opportunity to make the most of such lease structuring variables as number and amount of advance payments, purchase options, etc.
- PURCHASE OF RENEWAL OPTIONS. Most lease arrangements allow customers the options to either purchase at a stated amount, or at Fair Market Value, or to renew the lease at a reduced monthly payment. The lease structure determines which of these options is available.
- CONVERSION OF CAPITAL Because the sizable cash outlay involved in purchasing new equipment, many businesses lease to conserve capital. Money that could be used inventory, advertise, hire personnel, is better spent doing just that rather than spent purchasing equipment that is worth less and less as time goes by. If you are in business where you have important alternative uses for the money on hand, leasing always wins out in the "lease versus buy" analysis.
- EASIER CASH FLOW FORECASTING. Leasing which is simply dollars-per-month financing helps an equipment user fit a monthly payment into their budget. Because payments are fixed, users can continue to intelligently budget into the future.
- ABILITY TO WORK WITHIN BUDGET LIMITATIONS AND AROUND CORPORATE PURCHASING COMMITTEES. Subsidiaries of large corporations or department managers of small companies have the authority to acquire equipment they need, but only if it fits within operating budget guidelines. Many managers decided to acquire needed equipment via leasing because it allows them to have the use of the equipment (which is all they really want) and still work within operating budget limits. They don't have to go to capital expenditure committees for approval.
- TAX BENEFITS. Just as businesses have done for years, a lessee can usually deduct their monthly lease payment as an operating expense. This clearly reduces the net cost of the lease. It is always best to talk to your tax account first; however, leasing is generally advantageous to most businesses. Under the current alternative minimum tax rules (AMT), ownership of equipment triggers depreciation, which is a tax preference item.
- SPECIAL PROGRAMS. Marketing and pricing programs can be customized to reflect the financing needs of specific industries.
- MASTER LEASE. Businesses with multiple locations or divisions can derive benefits from a master lease agreement (MLA). A MLA is an agreement between the lessee and the lessor as to the terms and conditions under which they will do business. (It usually does not include pricing information.) The advantage of agreeing to terms and conditions with a selected lessor is that on all future installations, the acquisition process is simplified because this time-consuming exercise is eliminated.
- STATE-OF-THE-ART EQUIPMENT. When dollars are already budgeted, managers who need newer equipment can conveniently acquire that equipment on a dollars-per-month basis since the monthly payment precedent has usually already been established.
- SPECIAL ADVANTAGES FOR MUNICIPALITIES. Some leasing companies have true municipal lease programs that pass on the benefit of the tax-exempt status of the lessor's income to the lessee in the form of reduced monthly payments. These programs also include a fiscal funding clause which allows the municipality to cancel the lease contract if funds are not allocated to continue.
- ADDITIONAL LINE OF CREDIT. When equipment is bought with borrowed funds, credit lines with the lender are reduced. When equipment is leased, a business has, in fact, established an additional line of credit with its lessor.
- USE LESSOR FOR OTHER EQUIPMENT NEEDS. While some companies have captive finance companies to handle only their equipment, other lessors are in the position to lease just about anything. If you have the good fortune of selecting a full service vendor/lessor, all your equipment from photocopiers to lasers can be handled by someone with whom you have already developed a business relationship.
- PRESERVE CASH FLOW. Leasing your new machinery and equipment will allow you to preserve your existing cash flow to respond to new business opportunities. The profits generated from the productivity of the equipment is usually greater the lease payments.