Tag Archives: capital equipment leasing

Weigh the pros and cons of an equipment lease before you sign…

Any business that is considering capital equipment leasing will need to weigh the pros and cons of obtaining a lease as opposed to making an outright purchase.

Any business that is considering capital equipment leasing will need to weigh the pros and cons of obtaining a lease as opposed to making an outright purchase. Many companies are discovering that there are a number of major benefits associated with leasing expensive machinery and other business needs. When seeking a bank loan to pay for equipment, most companies will need to come up with a hefty down payment. Lease agreements usually offer one hundred percent financing and require no down payment whatsoever. The budgeting process is made easier as well. Loan payments can fluctuate over the life of the loan depending on interest rates and other concerns. A lease payment will generally stay the same throughout the terms of the original agreement. Whenever a large loan is taken out, the debtor will see a dramatic decrease in their line of credit that is available. With leasing, this is not a problem. Lines of credit are generally not impacted in any way by a lease agreement. Leased machinery will work as well as machinery
that is owned. So why take on the extra debt when the same benefits to a particular business venture can be achieved through a lease? In some cases, a lease agreement may offer tax benefits that are not available when items are purchased. Many business owners feel that offering up large amounts of money to purchase machinery does not make sense and can be detrimental to a company’s bottom line. For this reason, capital equipment leasing can be a better choice.

Since income and available funds can fluctuate greatly throughout the year, pouring large amounts of money into paying for machinery can be a huge and costly mistake. Choosing capital equipment leasing rather than assuming huge debts can mean the difference between business success and failure. Most vendors and financing companies can work out a lease agreement that best meets the needs of a specific business. The length of a lease can vary and may last between one and five years. Larger equipment will generally have a longer life expectancy and may carry a longer lease as well. With a lease agreement expenses such as installation, freight costs, maintenance, and software can be rolled into the cost of the lease. If obsolescence is a concern, upgrades can usually be factored in to a lease agreement that will address such concerns. There are several different types of capital equipment leasing agreements that are generally available. These agreements could include a capital lease, an operating lease, a master lease, and a deferred payment lease. Capital and operating leases are basic, full pay out agreements. The main difference between these two agreements is that an operating lease allows the expense to be deducted on taxes. A master lease allows for additional items to be leased under the same terms at a future date. A deferred payment agreement allows new businesses to postpone full monthly payments for a brief time.

A variety of organizations can benefit from selecting capital equipment leasing.  In addition to businesses, governments, municipalities, and other associations might choose this option as
long as their credit scores qualify them. Credit worthiness is determined by a number of factors including the overall financial condition of the organization, the length of time that the venture has been around, scores from standard credit rating services, payment histories, and references from banks. While no down payment is generally required when signing a capital equipment
leasing agreement, some vendors may require that clients come up with one or two advance monthly payments at the beginning of a lease. Purchase options are usually outlined in the original terms of the lease and should be clearly explained to a client by a representative of the leasing company. Most leases will commence after machinery and equipment has been delivered and installed. Leased machinery is generally regarded as the property of the vendor and not the
lessee. For this reason, the lessee will not need to pay property taxes on the equipment. Lessees are, however, usually expected to cover the costs of insuring any leased items. These policies can be attained separately, or can be included by the vendor in the original contract. Most vendors will also allow clients to request a buyout quote at any time during the life of the lease if they so desire. Leasing companies will generally allow clients certain add on and upgrade options. Cancelling a lease agreement usually is not an option.

Before choosing a provider of capital equipment leasing, there are a few questions that a potential client may want to ask. The questions could include an explanation of all costs and what kinds of additional options are included in the agreement. Asking the right questions can help to ensure that the vendor that is chosen will be a good fit for a particular business.

Once a decision to go with capital equipment leasing has been made, a reputable vendor will need to be selected. Choosing how to finance the lease is another important decision. The CLFA, or Canadian Leasing and Finance Association can help a potential lessee make these crucial decisions. Including accountants and tax consultants in on these decisions can be a good idea. Whatever choices a business might make, the option of leasing needed machinery can be a cost
effective way to move forward.