Get the Leasing Advantage for Your Small Business Fleet
Before buying new vehicles for your small business, you should first consider leasing as a viable option for vehicles, printers etc. Here are some advantages.
Free up cash and credit lines
One of the primary reasons for a small business to consider leasing over purchasing a vehicle outright is the effect it can have on cash flow. Leasing vehicles generally requires a much smaller initial investment, and the right lease can also offer low monthly payments. This reduction in the down payment can keep needed funds in a small business's coffers and keep credit lines open for covering more critical cash flow issues.
Types of lease options and tax benefits
Operating lease
In an operating lease, monthly payments are deducted as expenses for tax purposes, providing substantial tax savings. The full obligation lease is only footnoted on the balance sheet.
Capital lease
For tax purposes, a capital lease is similar to purchasing a vehicle. The business can deduct the depreciation of the vehicle and the interest paid on the lease. All benefits and risks of owning the vehicle are assumed by the business, and the vehicle can be purchased at a reduced rate at the end of the lease.
Depreciation and the leased business vehicle
The moment a purchased vehicle is driven off of a dealership lot, it begins to depreciate in value. Within the first five years of a car's life, it can lose anywhere from twenty to forty percent of its value. In some cases, that percentage can be closer to fifty. When a business owner leases a vehicle for use in a professional capacity, they are effectively renting the car for the full term of that lease. The monthly lease payment covers the depreciation of the vehicle, which is one of the reasons why a lease payment is typically much lower than a loan payment on the same model. Purchasing outright will require the buyer to pay the pre-depreciation amount, even if they're buying the last model year rather than the current model year. Rather than investing in a piece of equipment that's actively losing value each day, a lessee is paying for the use of a vehicle of which the depreciation is not a direct cost.
This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.