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Get a Competitive Advantage by Leasing Equipment

Aug 18, 2007
For the majority of businesses, acquiring equipment of some type is necessary to generate sales and profits. The manner in which the equipment is paid for can be critical to the future of the business. Equipment leasing can be the optimal way to get the needed machinery because of the myriad of advantages.

Maintain Working Capital
When you go to the bank to borrow funds for the equipment your company needs, you are usually required to place a sizable (20-25%) down payment for the loan to go through. Although equipment leases usually requires the first payment and a similar amount as a security deposit to be paid at the inception of the lease, no other funds are required. Other costs that can be rolled into the lease are freight, installation, and even training. Can you think of ways to expand and maximize the operation of your business with the funds you would have to expend up front to a bank?

Tax Advantages
When you buy equipment through conventional financing, you do get some tax deductions such as depreciation and interest expense. Such is the case with a capital lease as well. In general, a capital lease is one in which the equipment is transferred from the lessor to the lessee at the end of the lease term. An operating lease is one in which the lessee rents the equipment. At the end of the lease term, the equipment reverts back to the lessee. With operating leases, 100% of the payments are deductible as expense. The tax benefits can further reduce the cost of acquiring equipment.

Stay Current on Technology
The technological boom has no end in sight. Companies that aren't able to employ the latest technology will likely fall behind their competitors. Operating leases are particularly useful for acquiring the newest state-of-the-art equipment. At the end of the lease, the company can simply trade in the obsolete equipment for newer product. The ability to continuously be on the cutting edge of technology is particularly advantageous in the areas of research & development, product development, and operations. Another benefit to staying current on technology is that your company is more likely to attract the "best and brightest" employees.

Equipment Sellers Can Accelerate Sales & Profits
Instituting a vendor leasing program is one of the best ways an equipment seller can promote growth. It gives the customer the inherit advantages that leasing offers. Customers like to know up front how much it will cost them on a monthly basis to acquire the equipment. Establishing a solid relationship with a reputable leasing company can result in better rates for your clients. The more volume you do with the leasing company, the less they will have to spend on marketing for new customers. These savings by the leasing company are oftentimes passed on to your customers. A vendor leasing program also promotes both referrals and repeat business. You've eliminated a major burden for the customer: how to finance the equipment.

Equipment leasing in the U.S. has grown to over $250 billion annually. Most savvy business owners understand how to employ this tool in conjunction with other financing methods to optimize their operations and grow in the future.
About the Author
Kent Harlan has been a CPA since 1984 and is the owner of Ozarks Capital Funding, a firm offering financing in the areas of accounts receivable factoring, equipment leasing , and financing for healthcare providers .
http://ocflink.com
kenth@ocflink.com
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