Leasing has many benefits, and this is a popular method of equipment financing for many years. It offers some very unique advantages over traditional bank financing or direct purchases, and there are 20 reasons to rent equipment.
1. Pay by usage
Lease highlights the practical value of the equipment. In other words, leasing offers the opportunity to pay for equipment because it creates revenue for the company. Nothing is different from paying employees every two weeks or months, rather than paying them in advance for the next two or three years. It doesn't make sense to prepay any of the company's two assets.
2. Payment is fixed
In most cases, lease payments are fixed for a period of time. This has a big advantage over traditional bank loans or credit purchases, where interest rates are usually based on floating rates. Know the payment situation in advance to facilitate budgeting and reduce interest rate risk.
3. Longer terms / lower payment
Many banking institutions limit the loan period to 12 months or 24 months, at which time the interest rate and terms of the loan will be renegotiated. Depending on the useful life of the rental equipment, it is not uncommon to see a fixed lease term of up to 48 or 60 months. This actually reduces the monthly payment for a flat rate.
4. Outdated protection
In this era of major technological advances, certain types of equipment purchased today may be phased out within a year or two. Most leases provide provisions for economically upgrading equipment during the last year of the lease contract, providing the company with built-in outdated protection. In addition, although the leasing company has equipment ownership, it typically allows suppliers to offer transactions for existing equipment.
5. No advance payment
Traditional banking institutions typically require a 10%-25% down payment to finance on most devices. In a lease transaction, the entire amount is funded only by the first or first and last payment required at the beginning of the lease. In some cases, the company's financial strength is insufficient to support the lease amount and may require a small down payment.
6. 100% financing
Traditional financing methods usually do not allow for the cost of soft installation, shipping, maintenance and software to be included in the loan. These must be paid directly from working capital. On the other hand, leasing will allow for the inclusion of soft costs, thereby retaining working capital and allowing for a single payment per month for the entire acquisition.
7. Fast and simple
Traditional loans can take many days depending on the dollar amount acquired, and require a higher level of approval within the financial institution. This may mean delaying the order for urgently needed equipment. The credit process for leasing acquisitions is usually much faster and can be as fast as a few hours to a few days. Again depends on the size of the acquisition.
8. Creativity and flexibility
Banks are often known for their creativity and flexibility. Constrained by the Banking Act, the law limits what they can do to help their client base. On the other hand, leasing has evolved into a financing method that focuses on the specific requirements of customers. The structure of the payment can accommodate irregular revenue streams over the course of a year, or be set to match the return of devices that can be quantified each month. Leasing is the ultimate form of creative financing.
9. Purchase and renewal options
At the same time, the structure of the lease makes the only purchase option available available is the fair market value of the equipment determined at the end of the lease period. Over the years, the market has made it clear that they want to better determine the purchase price when accepting a lease. Therefore, most leasing companies will set a mutually agreed term purchase price outside the lease. This can range from $1.00 to 25% and is usually reflected in monthly payments. In addition, the purchase option can be refinanced again under the new lease contract, usually within the 12 to 24 month period.
10. Saving working capital
In a recent industry survey, the primary reason for renting equipment was the dialogue on working capital. By using lease financing, working capital can be freed for the day-to-day operations of the business, such as purchasing inventory, advertising, trade shows and hiring employees. In essence, leasing allows companies to reduce the amount invested in depreciable assets and use the funds to generate higher returns.
11. Simplify forecasting
Lease payments are shown as expenses in the company's income statement. Because payments are fixed and predetermined outside the lease, companies can intelligently predict and budget for the future.
12. Capital budget for operating budget
In large organizations, capital acquisitions typically require higher levels of approval than operating expenses and therefore require more time. Lease acquisitions, or monthly fees, are usually part of the operating budget, allowing managers of various departments or business units to approve the acquisition of much-needed equipment.
13. Tax incentives
Since the lease payments are calculated as expenses in the income statement, it is usually possible to cancel the payment. Since each company has a unique financial position and the accounting firm has differences in the accounting treatment of the lease, it is recommended to consult an accounting firm before deciding to lease on a tax basis.
14. Low interest rate / no interest plan
Equipment suppliers will provide time-sensitive low-interest or interest-free marketing programs from time to time to help them sell slow-moving inventory. Carefully observe these types of plans or ask suppliers if they have any rental incentives.
15. Master lease agreement
The Master Lease Agreement is a document that contains all the terms and conditions of the lease and is signed once to cover all future lease acquisitions. Typically, the lease credit line is pre-approved to a dollar amount to accommodate the expected acquisition over time. As the device is accepted, a simple one-page document is signed. This saves time and is effective in extensions or major projects.
16. Retain bank credit lines
No company wants to operate at the top of its credit line and is often reluctant to approach banks to increase credit lines. A prudent business practice is to fund emergencies - slow months or quarters, unpaid receivables or unexpected damage claims. The use of leasing creates a new credit facility that has no impact on bank relationships.
17. Hedging inflation
Leases are allowed to be paid in US dollars, and as the equipment is used, these costs are in turn paid in the future dollars.
18. Competitive advantage
Staying ahead of the competition often requires the latest and best technology. Rental equipment allows you to do your work more efficiently, efficiently, and more economically. In addition, it has the advantage of continuously upgrading to the latest available technology at a reasonable cost.
19. Sales and leaseback
Sales and leaseback is a specialized leasing transaction where the leasing company will purchase unfunded equipment from the company at a fair market price and lease it back to them. This is a huge way of freezing capital, tied to depreciable assets.
20. Enhance corporate image
Both the vehicles in the fleet and the equipment in production have an impact on the corporate image. Leases make assets look updated, updated, and create a successful corporate image.
All in all, leasing is a means of acquiring equipment, and it is no wonder that many equipment manufacturers have established their own rental weapons to help customers get products in the most efficient way. Leases only have good business implications.
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