Benefits of Leasing
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.
According to the Equipment Leasing and Finance Association (ELFA), eight out of ten companies in the U.S. currently lease some or all of their equipment. That’s more than $120 billion of equipment that is leased each year. 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 Lessees can mitigate the risk of getting caught with outdated equipment by using leasing to upgrade or add what they need.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.
Leasing Advantages:
- Avoids large down payments
- Provides fixed rate, fixed payment financing
- Hedges against inflation
- Keeps debt lines free
- Lowers scheduled payments
- Provides off balance sheet financing treatment
- Improves liquidity, leverage, solvency and profitability ratios
- Avoids accounting for depreciation
- Introduces asset management disciplines
- Makes technology more affordable
- Avoids stranded assets
- Enables upgrade without refinancing
- Eliminates disposal or salvage hassles
- Provides equipment for short term projects/developmental use
- Facilitates planned replacement of assets
- Provides hedge against technological obsolescence
- Standardizes technology platforms