Lease Finance Options
When financing through a lease, the type of lease contracted for has implications for equipment renewal terms and future acquisitions. Unless you have contracted under a master lease, you most likely will need to negotiate a new lease contract for additional equipment acquisitions. If you anticipate business growth that will require additional equipment, you can avoid a new leasing contract by negotiating an option to add equipment under original terms and conditions when structuring a lease program. This helps stabilize capital outlay.
Determination can be made at the outset whether the equipment finance company will handle installation, maintenance and insurance. Though considered value-added services, all are increasingly becoming standards in lease agreements, and are more efficiently, cost-effectively handled by an equipment finance company with core competencies in these areas.
The business's accountant should be consulted about getting the best mix of lease/loan/own assets on the corporate balance sheet. For instance, under accounting rules, an operating lease is a tax-deductible overhead expense, and lease payments are deducted from corporate income. Also, leased equipment does not have to be depreciated over years.
Equipment Finance on the Leading Edge
Managing obsolescence is a key strategic benefit of equipment finance. While some industries are more sensitive to equipment obsolescence than others, most businesses use IT equipment and are subject to the required updating for the latest technological advances. Again, determine exactly how long the equipment being acquired will be considered useful and productive to the organization. Financing allows the upgrading of equipment without having to manage disposal and other ownership burdens. The risk of getting caught with obsolete equipment is lower with leasing than other equipment acquisition methods.
Equipment Leasing and Finance Association research shows that equipment financing is the option businesses select in about one-third of all equipment acquisition in the U.S. More business leaders are choosing equipment financing for its strategic advantages, such as the reasons discussed above. For further information on how equipment finance may be used strategically, visit www.ELFAOnline.org. You will find a glossary of equipment finance terms, an analysis of the benefits of equipment financing, a directory of equipment finance companies and more.
Kenneth E. Bentsen, Jr. is president of the Equipment Leasing and Finance Association, the premier trade association representing financial services companies and manufacturers engaged in financing the utilization and investment of and in capital goods. For more information, please visit www.ELFAOnline.org
©Equipment Leasing and Finance Association 2007. Reprinted with permission.