What You Should Know about Equipment Leasing

As businesses prepare to compete and grow in a new millennium, many are searching for new ways to address their equipment financing challenge. The old ways will not meet today’s and tomorrow’s needs. The choice for many businesses is clear: equipment leasing.

United States (US) Equipment Leasing and Financing Association (ELFA) research shows that eight out of 10 U.S. companies lease some or all of their equipment. And, nine out of 10 say that they will use equipment leasing again.  Of all the ways to acquire equipment, leasing is the method most frequently used for all equipment types. In fact, almost any type of equipment can be leased - from fax machines and printing presses, to trucks and bulldozers.

According to the U.S. Department of Commerce, U.S. businesses acquired approximately $582 billion in capital assets during 2002 and, of that, about $280 billion were leased. This translates to about 31 per cent of all equipment as being acquired through leasing. ELFA predicts that leasing will continue to grow by at least 6 per cent annually.

Equipment leases can be structured as:

• Capital/Finance Leases (For example: $1 or 10 per cent Purchase Option)

• True/Operating Leases (For example: FMV Purchase Option)

• Municipal/Not-for-Profit Leases (Tax-Exempt)

It is important to point out that leases are not loans. As a result, their costs are figured differently from loans. To compare loan and lease products, it is better to compare monthly payments than to try to compare loan interest rates with lease rates. On a cost-of-capital basis, equipment leasing may be the least expensive option.

Equipment leasing companies can offer competitive rates for a number of reasons. Lessors - with their volume purchasing power - can secure attractive financing deals and pass along the savings to the lessee.

Types of equipment leases

In the US, once you have completed your evaluation and decided to lease your next equipment acquisition, the first step is to select the type of lease that fits your needs. When deciding which type of lease is best for your company, you should consult with your accountant. It is important to keep in mind:

• How long you want to use the equipment

• What you intend to do with the equipment at the end of your lease

• Your tax situation

• Your cash flow

• Your company’s specific needs as they relate to future growth.  You also will need to determine what happens at the end of the lease.

To design an equipment leasing plan that best meets your needs, you need to understand your options. Discuss any questions or concerns you have with your lessor or tax advisor.

If you want to learn more about equipment leasing, contact Advantage Leasing. Advantage Leasing Corporation is a national, independent leasing company based in Milwaukee, Wisconsin that provides flexible financing options for new and used equipment ranging from $5,000-$250,000.

Once you have selected the equipment you need and negotiated the price you must decide how to pay for it. Financing options may include bank business loans, credit cards or equipment leasing. Equipment leasing offers important advantages over other financing methods:

Added Credit Availability

Bank credit lines are not affected, so you retain your bank borrowing capacity for other needs.

Conserves Working Capital Financing

Equipment leasing finances 100 per cent of the equipment cost, leaving precious working capital for other needs.

Improves Cash Flow

Equipment leasing allows you to pay for the equipment as income is earned from its use.

Tax Deductible

In many cases, equipment lease payments can be treated as a fully tax deductible expense.

Quick, Easy and Less Expensive

The whole equipment leasing process is faster, simpler, and often less costly than other equipment financing alternatives. Our leases are always less costly than normal credit card lines.