An equipment lease is a transaction by which the owner (a “lessor”) of the equipment agrees to permit another party (a “lessee”) to use it for a defined period and in consideration for specific payments. Lease terms vary depending on the equipment type and use and can be structured with monthly, quarterly, semi-annual or annual payment scheduling.
Leasing continues to gain popularity around the world for many reasons:
- It conserves capital. A leasing solution conserves operating capital by avoiding significant up-front investment in equipment and allows the lessee to maintain liquidity on its lines of credit.
- It’s flexible. Lease terms can be customized to the unique needs of the client and are generally more flexible than conventional loan products. The terms of a lease can be defined to meet tax situations, cash flow and equipment needs.
- It’s practical. A lease solution transfers the uncertainties and risks of owning equipment to the lessor, allowing the lessees to focus on using the equipment as a productive part of business.
- It’s cost-effective. Lessees can mitigate the risk of getting caught with outdated equipment by using leasing to upgrade or add what they need.
The advantages of leasing have made it attractive to businesses across the spectrum, from one-person operations to Fortune 500 companies. According to ELFA, the types of equipment being leased are just as diverse, including telecommunications systems, medical equipment and computers. Transactions range from a few thousand to millions of dollars.
- Beat the Obsolescence Trap
In the high-tech arena, products are added, modified and upgraded at a rapid pace. The products you need today could be outdated next year, or completely incompatible with any vital technology that arises. Leasing protects you from obsolescence.
- Maximize Productivity
The most up-to-date equipment means peak efficiency, less duplication of effort, less “people intensive” paperwork, higher work standards and greater employee satisfaction. In other words, it means peak productivity. When you lease, you can upgrade or add-on at any time – to maintain peak productivity.
- Beat Capital Expenditure Limitations
When your capital budget is limited and/or funds already committed, any necessary equipment can be leased through operating funds. No balance sheet disclosures are necessary.
- Eliminate Product Uncertainty
Leasing also provides a “try-before-you-buy” opportunity to evaluate equipment and establish optimum configurations before committing to any purchase. Leasing not only eliminates any concerns about the ability of the equipment to satisfy your specific application needs, but also eliminates any risk of technological obsolescence.
- Gear Up for Project-Related or Seasonal Peaks
Leasing relieves pressure during peak periods of activity – whether seasonal or project-oriented. With leasing, you maintain optimum efficiency during peak or transitional periods, and you maximize prevailing competitive or economic advantages – all for minimum cost and risk.
- Pass Along Leasing Costs
If your revenues stem from contracts for specific projects or contracts of measurable duration, leasing can provide any system additions or upgrades needed. You can pass along the lease fee to the contracting company or agency as a legitimate expense.
- Maintain Cash Cushions and Credit Lines
Leasing leaves your vital cash and credit lines untouched should a business opportunity or unexpected demand occur. Leasing also frees you from all the financing obligations associated with equipment acquisition. No loans = no effect on credit lines. No cash outlay = no effect on cash cushions.
- No Down Payments
Leasing converts a big cash payment to a low monthly payment. Leasing improves your cash flow because payments are fully deductible and matched to earnings – you can finance corporate growth with your cash flow rather than credit.