Reasons To Lease Equipment

1. Pay As You Use

Leasing highlights the utility value of the equipment. In other words, leasing provides the opportunity to pay for equipment as it is generating revenue for the company. No different than paying employees bi-weekly or monthly as opposed to pre-paying them for the next 2 or 3 years of work. Both are assets of the company, and it makes no sense to pre-pay for either.

2. Payments Are Fixed

In most cases, lease payments are fixed for the duration of the term. This has a major advantage over conventional bank loans or purchases from a credit where the interest rate are commonly based on a floating rate. Knowing in advance what the payments will be, facilitates ease of budgeting and reduces interest rate risk.

3. Longer Terms / Lower Payments

Many banking institutions will limit the term of a loan to 12or 24 months, at which time the rate and terms of the loan are re-negotiated. Based on the useful life of the equipment being leased, it is not uncommon the see fixed lease terms as long as 48 or 60 months. This in effect lowers the monthly payment at a fixed rate.

4. Obsolescence Protection

In this era of major technological advances, certain types of equipment purchased today, can be obsolete within one or two years. Most leases offer a provision to economically upgrade equipment within the last year of the lease contract thus giving the company a built in obsolescence protection. In addition, although the leasing company holds title to the equipment, the will generally allow the vendor to provide a trade in on the existing equipment.

5. No Down Payment

Conventional banking institutions will generally require a down payment of 10%-25% in order to undertake financing on most equipment. In a lease transaction, the entire amount is financed with only the first or first and last payment being required at the time of lease inception. In some cases where the financial strength of the company is not sufficient to support the amount being leased, a small down payment may be required.

6. 100% Financing

Traditional financing methods will frequently not allow soft costs such as installation, freight, maintenance, and software to be included in the loan. These must be paid directly out of working capital. A lease, on the other hand, will allow soft costs to be included, thus conserving working capital and allowing for a single monthly payment for the entire acquisition.

7. Fast And Easy

Depending on the dollar amount of the acquisition, a traditional loan may take many days and require approvals from higher levels within the financial institution. This can mean delays in getting the order placed for the much needed equipment. The credit process for a lease acquisition is generally much faster and can be as quickly as a few hours up to a couple of days. Again depending on the size of the acquisition.

8. Conservation of Working Capital

In a recent industry survey, the number one reason for leasing equipment was conversation of working capital. By using lease financing, working capital is freed up to be used in the day to day operation of the business for things such as purchasing inventory, advertising, trade shows, and hiring employees. Essentially, leasing allows a company to reduce the amount invested in a depreciating asset, and use the money where it will generate a higher return.