Why Leasing Equipment Makes Good Business Sense

2. Capital Lease - This is also typically called a finance lease. It is an asset and liability issue and the lease typically has a bargain purchase option of $1.00. Companies who use this type of lease will do so for a variety of reasons of which we have covered earlier, primarily for cash flow management, flexibility, fixed payments and tax deductibility.

3. Sale/Leaseback - This is a situation where a company has purchased and is using the equipment, which they then sell to a leasing company, which in turn charges rent for the usage. The main reason for doing a sale/leaseback is so that a company, which has recently paid cash for a piece of equipment, realizes that they could have put the cash to better use.

4. Trac Lease - This is for vehicles only and does not pertain to all industries. It is a lease whereby the lessee guarantees the lessor that they will not suffer a loss on the residual buyout at the end of the lease. Typically these types of leases are done with semi-tractors and trailers.

After deciding that your company wants to lease some equipment, you have to decide where to go to for a leasing company. There are several different categories of lease companies as well as the size of the transactions that companies work with. A micro-ticket company only works with leases between $1,000-$25,000, small ticket is between $5,000-$250,000, mid-ticket is $250,000-$5 million, and large ticket is more than $5 million.

Types of Finance Companies

1. Bank Affiliated - These frequently can provide very competitive rates. They are also good for relationships especially if it's your bank and you have open credit availability. Not so good if you are maxing on your conventional credit or it's a competing bank and also not so good if you are buying equipment for your Dallas operation which will be making the payments because banks can be very territorial. Many banks maybe limited by being able to do business in the state that you are in and not at another company location that is out of state.

2. Independent - They can offer the greatest flexibility, will do almost any type of equipment, and can offer very competitive rates, although not usually as low as the banks or the captives.

3. Brokers - Generally considered the most expensive form of leasing. They will turn a transaction around and sell it to an Independent leasing company or bank affiliated company. They need to get their approval in order to get the transaction completed. Can typically get "bruised" credits approve through higher risk sources.

4. Captive - These are owned by the equipment suppliers and can provide very low rates because of their familiarity with the product. They also may use lease as a "loss lead" to move equipment. They typically can only finance their products and will not lease products from multiple manufactures. Some independent leasing companies may become a manufacture's "Captive" finance company when the manufacture "buys" down the rate, making it cheaper for the end customer.

As a business owner or manager leasing may be a good alternative for when you have to upgrade or expand your plant's equipment. Leasing has become a way for any size company to take advantage of the competitive forces that are at work in the financial community and get your equipment financed in a way that makes the most sense for management and the shareholders. In the end, you will want to seek out and talk to several different sources before you decide on a finance company that you will want to work for now and in the future. Many companies choose a lease/finance company because they may have the cheapest rate. Sometimes rate may not be the most important factor, it could be flexibility, ease of working with the finance company, or a company's willingness to work with you in the future. Whatever you decide, make sure you feel comfortable with the people that you are working with, because in the end, they will be the ones that will be able to help with your company's future expansion plans.