Equipment Leasing: The A to Z's of Financing Your Business's Assets

Business.com / Financial Solutions / Last Modified: July 11, 2017
Photo credit: Tashatuvango/Shutterstock

The ability to finance new and used assets for your business helps companies grow while conserving cash.

Equipment leasing continues to be the best way for businesses to maximize cash flow and overall cost effectiveness for new asset acquisitions. The other significant advantage of a lease equipment strategy is the ability of this type of financing to achieve financing creativity based on the needs of your firm. Corporations of all size, including the government, utilize leasing as a financing option.

Is there any asset that can't be financed? For years we half-jokingly told clients that anything can be financed, and quite frankly, based on the overall credit structure and quality of your company, we still believe that to be very true.

Many business owners don't often realize that intangible assets can be financed, such as software, installation costs, maintenance contracts for your financed assets, etc. Properly structured leases create a win-win scenario for all parties to the lease – namely the equipment vendor or manufacturer, your firm, and, of course, the lease finance company.

When exploring this option with clients, we are often somewhat disappointed when owners are focused on the interest rate, because in a large number of cases, the overall lease amount, the structure of the lease and the type of lease chosen are more important than the rate. "What's my rate?" is not an effective way, we believe, to enter into a lease negotiation. Having said that, though, the interest rate must be commensurate with your overall credit quality, as credit worthiness, combined with the asset collateral, drives the final rate decision.

A quick recap of the generic benefits of leasing should emphasize the advantages of this type of asset acquisition financing. These benefits include the following:

  1. The ability to acquire equipment while minimizing cash outflow for asset purchases
  2. Cash flows match the benefits and useful life of the asset being acquired
  3. Potential tax and balance sheet advantages
  4. The ability to upgrade equipment and stay ahead of the competitive curve based on your ability to acquire assets you might not otherwise be able to purchase on a cash basis 

     

Equipment leasing often tends to be 100 percent financing, which is a great way to maximize cash flow. And, as we noted, many business owners and financial managers are often surprised to learn that lease financing can include tangibles as well as maintenance and upgrade costs depending on the asset you are financing. (Hint: Think computers!)

There are a number of tools that allow you to evaluate your lease financing options, one of which is a lease calculator or a lease versus buy calculator. You can find many of these calculators on the internet.

We strongly recommend that you utilize the services of a lease financing expert who has credibility and experience, which can translate into your firm capitalizing on some great alternative financing strategies.

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