In the previous decade, equipment leasing has evolved into a multibillion-dollar industry, accounting for about a quarter of all capital expenditures in the United States. There are five primary reasons why lessees choose for leasing versus borrowing when purchasing equipment. Crestmont Capital thinks investment in equipment is vital to the success of many comapnies.
Economical
Leases may help you save a lot of money. Due of the residual value in a lease, monthly lease rates may be rather affordable when compared to bank loan payments. Lease terms that are longer might help the lessee save money. The equipment’s cost is stretched over a longer length of time, requiring less payment each month to recuperate the whole cost.
In comparison to a bank loan, Equipment leasing often requires little or no upfront payment. Many leases require just one upfront payment instead of the standard 20% down payment for lessees with good credit. Reduced upfront and recurrent payments aid in the preservation of operational resources.
Accounting
Shareholders and lenders alike need strong and healthy financial accounts. When a business borrows money to purchase equipment, its balance sheet displays an asset and a liability. If, on the other hand, the company chooses leasing over borrowing and the lease is characterized as an operational lease, no asset or liability is formed. Off-balance-sheet finance is increasingly being used in conjunction with operational leasing.
Taxes
Tax benefits for the lessor may impact the lessee’s lease payment. Tax leasing incorporates reciprocity, in that the lessor-owner enjoys the advantages of the lessee-tax user and may pass those advantages along to the lessee in the form of a lower lease payment. Additionally, the lessee benefits from the leasing payments being fully deductible.
Technological
In today’s rapidly changing world, high-tech equipment is always in risk of becoming obsolete. Leasing is popular for a variety of reasons, one of which being the likelihood of technological obsolescence. Lessees may benefit from Equipment leasing by mitigating the risk of owning antiquated technology.
Risks may be transmitted in a variety of ways. To begin, a lessee may enter into a short-term lease, compelling the lessor to assume technical risk via residual value. When required, environmentally friendly equipment may be renewed. If the lessor determines that the equipment has become obsolete during the lease term, the lessor may undertake a takeout, or equipment upgrade.
The lessor will find a new home for the original equipment during a takeout, since equipment that is obsolete to one company may not be to another. For novel and unproven technology, many lessees choose for short-term or experimental leases.
Flexibility
A business may just need the use of a piece of equipment and not own it. Leasing may enable a business to sidestep many of the annoyances associated with equipment ownership. For instance, leasing may alleviate the lessor’s disposal load, since the lessor will have better access to the used equipment market. Insurance, maintenance, and property taxes may also be included into the lease payment between lessee and lessor. Numerous lessees like the ease of leasing equipment. Many owners/managers prefer leasing to purchasing equipment because it enables them to acquire critical equipment from their operating budgets without going through a lengthy bureaucratic capital budgeting and approval process. Renters may also benefit from lease types that are flexible, such as step or missed payment leases. These payment schemes benefit seasonal and cash-strapped businesses.