Equipment Leasing: Making Every Penny Count

Sweat Those Assets

If you’ve ever had to think carefully about what you can afford to buy with your spare cash, you’re not alone. In business, it happens all the time – after you’ve paid your staff, the rent, the utilities and your suppliers, there’s not much left to spend on new equipment. No matter that your company desperately needs it, your accountant says it’ll have to wait.

That’s the conventional wisdom, anyway, and for decades, businesses made do and mended, missing one opportunity after another.

It needn’t be like that. Today, more than 80 per cent of American businesses lease at least one piece of equipment, and the Stern School of Business at New York University reports that nearly all would do so again in future. Equipment leasing is flexible, minimizes cash requirements, requires no personal security and can reduce your tax bill.

No two businesses are alike. Tailoring a lease to match the unique needs of an organization is commonplace in today’s sophisticated financial markets, and the benefits are almost literally unlimited.

Secure But Unsecured

No matter what they tell you, banks don’t like risk. That’s why traditional business lenders prefer to secure their advances against personal assets, often the owners’ properties. Leasing doesn’t require you to sign away your home in order to finance your business – in most cases, the finance is secured against the new equipment.

A leased asset is yours to use for an agreed period and, depending on your needs, you may either buy the equipment during the term of the lease, or simply return it to the leasing company, or lessor, at the end of the term.

Finance leases, or capital leases, are common where the client, or lessee, has insufficient collateral to secure a loan. The term of the lease is usually the same as the useful life of the equipment, and the lessee often has the option, but is not obliged, to buy the equipment on termination.

An operating lease is useful for an asset such as a carwhose value falls, or depreciates, rapidly over a relatively short period. There is rarely a final purchase option as businesses generally do not want to tie up cash in this type of equipment.

A hire-purchase lease may be suitable for businesses that need to purchase relatively low value equipment over a short period. In this case, ownership transfers progressively throughout the term of the lease.

Keep Your Cash for a Rainy Day

Equipment leasing lets you keep your cash intact for day-to-day operations. Most lease arrangements require only a modest down payment, usually equal to no more than one or two monthly payments and typically less than 5 per cent of the asset value.

Then the advantages of a tailored lease kick in – if you need time after making your first payment, build in a 2- or 3-month payment holiday; if your business has seasonal lean periods, vary your regular payment throughout the year; if your business needs cash for growth, have your installment increase progressively throughout the term. Enjoy exploring the flexibility – you won’t run out of options.

Not only does equipment leasing allow you to choose a payment plan that suits your cash flow, it guarantees predictability. You can budget for a regular monthly payment, knowing that your outgoings are covered. Most lease arrangements allow you to wrap in software and one-off costs including installation, commissioning and annual maintenance, so you won’t get caught out by breakdowns or wear and tear.

Leasing Leading-Edge Equipment

Many businesses rely on the latest technology to maintain a competitive advantage. Buy a new machine outright, and you’re stuck with it until it wears out. Lease it, and you simply decide how soon you want to upgrade to next year’s model. Leasing high-tech equipment can give your company an edge that conventional financing just can’t match.

If you’re not sure whether you’ll still need the equipment at the end of the term, simply tailor the lease to remove the uncertainty. Almost every lease can include end-of-term purchase options, ranging from a “Fair-Market-Value” buy-out to a $1 transfer of ownership. You’re protected against almost every eventuality – no worries about obsolescence or upturns in demand.

No Alternative?

Sometimes, external events drive your decisions. Shortly after the turn of the century, a presidential mandate required all U.S. physicians to adopt electronic record-keeping systems by 2014 – a move that involved the purchase of equipment worth billions of dollars. Without lease finance options, most practitioners would have been unable to comply.

Today, medical equipment leasing is one of the most developed areas for lease finance – not least because of the massive flexibility it offers for the acquisition of technology-driven facilities that will save lives.