Protection against obsolescence
is one of the many benefits of
equipment leasing, since the lessor
assumes the risk of obsolescence.
tax benefit, which is usually reflected in a lower monthly rent
payment for your business as well as the ability to expense the
payment. In many instances, if your business cannot use the tax
benefit, it makes more sense to lease than to purchase through
a loan because you can trade the depreciation to the lessor in
exchange for better cash flow.
7. How will a working capital facility be impacted?
Many businesses have an aggregate line of credit through a bank
that they can use for inventory purchases, improvements and
other capital expenditures. Depending on the lending covenants,
it is often possible, as well as preferable, to preserve
your bank working capital by leasing equipment through an
equipment finance provider.
8. How flexible does your business want the financing terms
to be?
A lease can provide greater flexibility, since it can be structured
for a variety of contingencies, whereas with a loan, flexibility is
subject to the lender’s rules. If your business has continuing use
for the equipment at lease termination, extended rentals, purchase
options, trade-ups and return options are available. The lease term
allows your business to match all expenses to the term of the equipment’s
use, including income tax expense, book expense and cash
expense. Most importantly, as mentioned previously, the expense
stops when the equipment is no longer required.
9. Do you anticipate the need for additional equipment under
your financing agreement?
If your business is planning for growth, you can enter into a
master lease that will allow you to acquire multiple pieces of
equipment under multiple schedules with the same basic terms
and conditions. This provides greater convenience and flexibility
than a conditional loan contract, which must be renegotiated
for additional equipment acquisitions.
10. Who can help me evaluate what’s best for my business?
Whether you finance equipment through a lease or loan, each
has its advantages. When making the decision between them,
it is highly recommended that you consult with your accounting
professional, as well as draw on the resources of your equipment
financing provider to enable you to secure the best possible
terms for your lease and/or loan.
These are some of the key considerations that should go into
the lease versus loan decision-making process. For a lease/loan comparison
and online tools, visit www.equipmentfinanceadvantage.org/
ef101/llc.cfm. t
William G. Sutton, CAE, is president and CEO of the Equipment Leasing
and Finance Association, the trade association that represents companies in the
$827-billion equipment finance sector, which includes financial services companies
and manufacturers engaged in financing capital goods.
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