The Truth About Equipment Leasing
Equipment lease financing is a credible mainstream industry that gives you an alternative to bank loans and lines of credit.
An equipment lease offers reasonable fixed payments with typical terms ranging from 36 – 60 months and a negotiable residual at the end. It is most often considered a “rent-to-own” financial scenario.
The lessee (user of the equipment) pays the lessor (the owner of the equipment) a monthly lease/rental payment for the rights to use the equipment. At the end of the lease term, the lessee has the option to either:
- pay a sum of money, outlined in the lease contract (typically $10 to 10% of the initial equipment cost), and take ownership of the equipment
- continue making the rental payments, or
- return the equipment.
The usual course of action is to buy out the lease and own the equipment.
An equipment lease is not a loan and it is not structured the same as a vehicle lease.
With an equipment lease, the lessee “rents” the equipment with the option to buy it out at the end of the contract.
End of term options are usually 10% of the equipment cost, or a nominal amount according to the terms of the lease.
Lease structures can offer tax advantages, as well as other benefits that can have a positive impact on your bottom line.
Lease 1 Financial also offers lease financing for vehicles – personal and corporate (including fleet).
- You find the equipment you need.
- Contact us. We take your application and find the best lease for you.
- We pay the vendor for your equipment.
- You use the equipment while making monthly payments.
- At the end of the lease, the equipment is yours!
All the benefits without the big up-front costs!
If your business needs it, we can lease it! We can secure lease financing for the vast majority of equipment for any industry.
If your office needs computer or phone equipment or warehouse racking, we can lease it. If you need to upgrade manufacturing equipment or outfit a commercial laundry business, lease financing can help. Machine tools, woodworking, agriculture, construction, welding, veterinary, forklifts and materials handling, graphic arts, dental, landscaping, medical… the list goes on.
If you don’t see your industry or type of equipment listed, contact us!
We also offer lease financing for vehicles – personal and corporate (including fleet).
Increased Buying Power: Having to pull the total cost of equipment from your cash on hand is not always possible or the best solution. With the smaller periodic payments of a lease, you increase your purchasing power.
Sometimes that one piece of equipment can mean all the difference to your company’s future. Could you capture that new client? Fill that order faster with less labor costs? Get the equipment that you really need.
You may be able to add extra features or accessories to your equipment for a slight increase in your lease payments rather than waiting years to save up the cash and let opportunity pass you by.
Tax Advantages: A lease payment is usually treated as an expense rather than a depreciating asset. This way, you capture the depreciation back to your company more quickly, putting your money back into your company where it should be. Talk to your accountant about how this might work for your business.
Easier Budgeting & Cash Flow: Fixed monthly lease payments make planning easier. You can generate cash flow by making use of your equipment immediately. Your cost-to-income ratio is more likely balanced with a lease rather than a large up-front non-leased equipment purchase.
Preservation of Cash & Credit Lines: Leasing your equipment allows you to preserve your cash and lines of credit for their intended purpose (e.g. operating expenses like stocking inventory, raw materials costs, or unexpected expenses). Remember that a line of credit is really a demand loan and not a great idea for equipment purchases!
Increased Production & Profit: Old, worn-out, outdated equipment can greatly diminish your ability to produce the needs of your clientele efficiently and profitably. Constant downtime for repairs can cost you greatly and potential clients may be swayed by updated technology. Additionally, should you be looking to sell your company in the future, updated equipment increases the value of your company. Equipment leasing enables you to upgrade and expand the service your business can offer, allowing for greater profit.
See Also: 5 Common Reasons To Lease.
Things To Keep In Mind
Lines of Credit: Using a line of credit for equipment purchases can be detrimental to your business. A line of credit is actually a “demand loan”. This entitles the bank to reduce or revoke the loan at any time. Interest rates are also subject to fluctuations.
Credit Cards: Credit cards are typically a very high-interest form of financing and not recommended unless you are able to pay off the balance every month.
The monthly lease payment is calculated based on several factors including:
- The cost of the equipment
- The term (length) of the lease
- The lessee’s credit
The amount the lessee pays at the end of the lease term to buy out the equipment is part of the lease contract negotiated up front. This can vary from as little as $1.00 to Fair Market Value. The more typical ranges are $10 to 10% of the initial equipment cost. (There are tax advantages to consider when choosing the end of term buy out.)
As a lease broker, our job is to act as your advocate, and to help you navigate the equipment leasing world.
There are many lease funding sources available. Every lender has their own preferences for deal size, industries, and equipment they like. Some will work with start-up business and others will not. Some are flexible with their lease structures while others have very specific requirements. Not every lender will be the best fit for the needs of your business.
Two of the biggest dangers of “going it on your own” in the lease financing world are:
- Applying to various lenders without understanding their individual nuances, and
- Negatively impacting your credit score (See When Shopping For The Best Deal Is A Bad Idea.)
Your lease broker will help you in the following ways:
- Present your credit story to a potential lender in the best possible way
- Find the right lender for your financing needs
- Get you the best possible payment options
- Negotiate structuring of the lease to meet your unique needs
- Facilitate the documentation for you, the vendor, and the lender
At Lease 1 Financial, we take our role as your lease broker very seriously and are honored to serve you in all of the above ways. We like to take things a step further by doing the following:
- We stay on top of end-of-lease and early-purchase-option buyouts so that you are informed and not paying for your lease any longer than you need to
- Following up with you to the very end of the lease term to celebrate the success of your growing business and to ensure that your lease is meeting your needs.
- Remain available to you for any questions you might have.
- Should anything unforeseen occur with your business during the lease, we will contact the lenders on your behalf to assist.
- Do what we can to help your business thrive!