As businesses prepare to compete and grow in a new millennium, many are searching for proven new ways to address their equipment financing challenge. The old ways won’t meet today’s and tomorrow’s needs. The choice for many businesses is clear: equipment leasing. Equipment Leasing and Financing Association (ELFA) research shows that eight out of ten U.S. companies lease some or all of their equipment. And, nine out of ten say that they will use equipment leasing again. Of all the ways to acquire equipment, leasing is the method most frequently used for all equipment types. In fact, almost any type of equipment can be leased – from fax machines and printing presses, to trucks and bulldozers.
According to the U.S. Department of Commerce, U.S. businesses acquired approximately 2 billion in capital assets during 2002 and, of that, about 0 billion were leased. This translates to about 31% of all equipment as being acquired through leasing. ELFA predicts that leasing will continue to grow by at least 6% annually.
EQUIPMENT LEASING STRUCTURES
Equipment leases can be structured as:
• Capital/Finance Leases (For example: or 10% Purchase Option)
• True/Operating Leases (For example: FMV Purchase Option)
• Municipal/Not-for-Profit Leases (Tax-Exempt)
It is important to point out that leases are not loans. As a result, their costs are figured differently from loans. To compare loan and lease products, it is better to compare monthly payments than to try to compare loan interest rates with lease rates. On a cost-of-capital basis, equipment leasing may be the least expensive option.
Equipment leasing companies can offer competitive rates for a number of reasons. Lessors – with their volume purchasing power – can secure attractive financing deals and pass along the savings to the lessee.
TYPES OF EQUIPMENT LEASES
Once you’ve completed your evaluation and decided to lease your next equipment acquisition, the first step is to select the type of lease that fits your needs.
When deciding which type of lease is best for your company, you should consult with your CPA/Accountant/Tax Advisor. It is important to keep in mind:
• How long you want to use the equipment
• What you intend to do with the equipment at the end of your lease
• Your tax situation
• Your cash flow
• Your company’s specific needs as they relate to future growth
You also will need to determine what happens at the end of the lease.
To design an equipment leasing plan that best meets your needs, you need to understand your options. Discuss any questions or concerns you have with your lessor or tax advisor.
Determining if leasing is right for your business can be complex, but choosing a leasing partner doesn’t have to be. Contact Advantage Leasing for flexible lease programs that work for your business.
Mike Elton is the Vice President of Sales for Advantage Leasing Corporation. Advantage Leasing is an equipment leasing company in Milwaukee, Wisconsin lending to business customers throughout the United States with financing needs valued between ,000 and 0,000.
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