Leasing Benefits and the benefits of leasing explained.
Flexibility and convenience are two of the benefits most frequently cited about leasing. As your business grows and your needs change, leasing allows you to add or upgrade equipment at any point during the lease term through add-on or master leases. With leasing, you can customize a program to address your needs and requirements regarding cash flow, budget, transaction structure and cyclical fluctuations. It also offers options including installation, maintenance and many other services.
First, understand that with leasing, you pay only for the time you use the equipment, rather than the whole value of the equipment. At the end of the lease term, the worth of the equipment is called its residual. This residual value is built into the lease pricing so that monthly lease payments are usually less than monthly loan payments. This benefit of leasing improves cash flow, an always-important consideration for small and start-up businesses. Another reason leasing improves cash flow is because it does not require a down payment or additional collateral, so it is equivalent to 100 percent financing. These benefits allow you to direct more budget dollars into revenue-generating activities.
Another leasing benefit is the ability to transfer the risk of obsolescence and being left with out-dated equipment to the leasing company since the equipment can be returned at the end of the lease term. This also enables an equipment re-fresh so you can have the latest equipment affordably, and is especially important in rapidly evolving equipment categories such as computers.
Ease of equipment disposition is another benefit of leasing that cannot be underestimated. The costs of removal, environmental fees (in the case of some types of equipment such as computers), and re-marketing, which under the terms of outright ownership can be significant, are avoided with leasing.
The treatment of operating leases for balance sheet management and tax reporting also make leasing advantageous. An operating lease is not reported as a long-term debt or liability, and does not appear on your business financial statement. So you enjoy the use of the equipment you need, while maintaining favorable debt to equity ratios and other financial measurements required by traditional lenders in the event that you need them. For tax purposes, operating leases are treated as overhead expenses so lease payments are deducted from your corporate taxes, thus avoiding depreciation write-downs over time.