Fresh Insights

Information created to address your business’s top challenges and concerns. To spark transformative thinking and problem solving.
April102014

Advantages of Business Equipment Leasing

Business Equipment

For large and small enterprises, business equipment leasing has advantages over outright purchases. Whether it's a startup or more mature business, savvy owners can benefit from leasing a variety of equipment from computers and printers to company cars and heavy construction products. In addition to the advantages enjoyed during the lease period, businesses often have disposal options that purchasing would not provide.

Cash Flow Control

Leasing equipment helps businesses control cash flow and is preferred because it helps businesses manage and reduce financial outlays for the equipment that's needed. Even when a business is well-capitalized, equipment leasing is a good choice because large purchases can strip the business of operating capital. This could extend a business's financials past the break-even point, especially when circumstances force unanticipated equipment purchases.

Latest Equipment

With a smaller outlay than required for purchasing, a business has access to the newest and best equipment available to support its operations. Keeping an operation running smoothly requires periodic investments in newer or better equipment. With business leasing, it is often possible to upgrade equipment, when the time comes, without increasing monthly budget significantly.

Tax Deductions

Consult a tax professional or an accountant to get up-to-date information about the tax advantages of business equipment leasing. Either can help a business negotiate equipment leases with terms that result in the best tax offsets for the business, based on its legal structure and financial position. When equipment is purchased outright, the residual value declines annually, along with the amount of the tax deduction. Generally, during the useful life of leased equipment, a business's tax deductions are also greater than the similar deduction for depreciation of purchased equipment. Once purchased equipment is fully depreciated, not only is it outmoded by then, but it also no longer provides any significant tax deduction. With leased equipment, a business never needs to lose a tax offset for its investment in equipment.

Maintenance

Business equipment leasing usually relieves a business of maintenance costs and frees up money that can be put into operations. This is especially useful for businesses on tight budgets. Eliminating equipment maintenance costs can help alleviate the need for drastic choices, such as choosing between equipment and staff benefits.

Considerations

Every business needs a decent credit rating to be eligible to lease equipment, much the same as required for renting its physical space and company vehicles. The first step a business should take is to determine whether the business truly needs the equipment and if the terms of lease financing are affordable. A business can conduct preliminary research into how leasing will affect its finances by approaching the bank that it uses for its accounts. Discuss the available lease financing options, rates and fees that the business can expect.

Many large national and regional banks today offer an array of services to small businesses and are receptive to funding small business leases. Additionally, depending on location and type of business, a trade association or members of the chamber of commerce may be good sources for referrals to reputable private financing companies that work with small businesses. When considering lease financing offers in the private market, review and compare rates and terms carefully. Aspects such as end-of-lease options for equipment purchase and interest rates during the lease vary significantly between entities that finance small business leases.

 

Learn more about how Cadence Bank's Small Business lending can help your business, and let us help you determine the impact of leasing on your finances.