Preserve Credit Lines
Leasing permits acquisition of equipment now and preserves bank credit
lines for other opportunities. This tends to expand your available lines
of credit for future growth.
Tax Advantage
Lease terms are usually shorter than the depreciable life of the equipment
and lease payments can be treated as equipment rental expense-- resulting
in a faster write-off of equipment and tax savings.
Better Cash Flow
Lease payments can provide improved cash flow when compared to loan payments
or cash purchases. The first lease payment is usually less than a loan
down payment and sales tax is collected over the life of the lease, not
paid in advance. In real dollars, lease payments actually decrease over
time due to inflation.
Payment Flexibility
Lease payments can be structured to match equipment use and cash flow
needs. Payments can be structured as monthly, quarterly, semi-anually,
or annually. Skipped payments and step up payments are also available.
End of Lease Options
At the end of the lease rental period, you may purchase the equipment
(usually for 10% of the original equipment price), continue to make rental
payments, or return the equipment.
Easier Approval
Often corporate branch operations, hospitals, non-profit organizations
and municipalities are able to acquire equipment through a lease arrangement
without board or home office approval for a capital expenditure. Lease
payments are treated as rental expense and no capital outlay is required.
Upgrade Equipment
In some instances, the equipment needs to be upgraded prior to the end
of the lease term. In this case, you can arrange with your equipment dealer
to trade in the leased equipment and re-lease the new equipment. The lessee
also has the option of buying out the lease at any time.
Balance Sheet Ratios
Leasing allows you to acquire needed equipment without taking on more
debt. Adding debt often affects your operating line borrowing rate.
Fixed Payments
Once approved, the terms and payments are guaranteed. Even though interest
rates may rise, lease payments will remain the same.
