Each year the value of equipment leases exceeds $100 billion. According to the Equipment Leasing Association, 80% of all American businesses lease all or a portion of their equipment. Business owners and financial executives recognize the value of equipment leasing, instead of purchasing.
Leasing Conserves Working Capital
Leasing is a means of 100% equipment financing that frees working capital for investment in more appreciating assets. It assists your company in maintaining liquidity by eliminating the need to make large expenditures for needed equipment.
Leasing Provides Flexibility
Companies have different needs, different cash flow patterns, different - sometime irregular - streams of income. For example, start-up companies typically have limited cash and debt lines. Mature companies might have other needs: to keep debt lines free, to comply with debt covenants, and to avoid committing to equipment that may quickly become obsolete. Therefore, your business conditions - cash flow, specific equipment needs, and tax situation may help define the terms of your lease. Moreover, a lease provides the use of equipment for specific periods of time at fixed rental payments.
Leasing Insures Against Obsolescence
When you lease, your risk of getting caught with obsolete equipment is lower because you can upgrade or add equipment to best meet your needs. Furthermore, your equipment needs can change over time due to changes in your company, such as diversification. Leasing allows you to stay on the cutting edge of technology. Remember profits are generated by the use of equipment not by ownership.
Leasing Offers Tax Advantages
Lease payments are 100% tax-deductible business expenses. Leasing keeps you from dealing with depreciation schedules and simplifies expensing your equipment.
Traditional Lease with a Fair Market Value (FMV) Purchase Option
Commonly referred to as an operating lease. Payments are 100% tax deductible. At the conclusion of the Lease Term, the Lessee is given the option to RETURN the equipment OR PURCHASE the equipment for its then Fair Market Value.
Lease to Own. Otherwise know as a Finance Lease or One dollar purchase option
At the conclusion of the lease term, the ownership of the equipment is automatically transferred to the Lessee. This option has become popular with the increases in deductible amounts offered through Section 179.
This applies to each city, county, state or federal government entity and/or their agencies such as Law enforcement, Fire Departments, School Districts, Hospitals, Colleges and State Universities. It allows municipal entities to acquire essential equipment and maximize their budget for today's needs as well as tomorrow's. This type of lease is more aggressively priced because of the tax free rate that is given to the municipality.
TRAC Lease (Terminal Rental Adjustment Clause)
An operating lease used for trucks and licensed commercial vehicles that contains a higher, predetermined purchase option at the conclusion of the term. A TRAC lease allows the Lessor to offer a lower rental (lease) rate because the Lessee is able to claim the depreciation on the equipment.
Sale Lease Back
Sale of equipment already listed on Lessee's balance sheet to Lessor which in turn lease the equipment back to the Lessee. This provides a capital infusion to the Lessee and possibly removes debt from their balance sheet.