Benefits of Equipment Leasing

At some point in their business lives, most owners of small businesses have made the trip to a local or regional bank.  There they become familiar with the aspects of commercial credit - borrowing money against their assets and cash flow and usually, their personal guarantee.  Equipment leasing offers similar benefits and may be an excellent alternative - or compliment - to bank financing.

Faster transaction processing
Because equipment leasing typically concentrates on one asset - the equipment being leased - transaction processing can proceed more quickly than other types of financing.  The underwriting documentation will be less expensive to complete than that of bank or most other types of financing.

Liens and Underwriting Covenants
The lease agreement covenants will be much less restrictive than those of other commercial credit transactions.  The leasing will use the equipment as collateral and may ask for a personal guarantee of the principal owners of the business.  If you have existing bank financing, make sure that you are able to obtain additional financing under its covenants.  Most bank covenants limit the ability to raise additional funds, which may impact on your company's ability to repay the bank loan and to collateralize that loan.  If you are restricted by your bank, ask your banker to ""carve-out"" room in the bank's liens for you to obtain lease financing.  Depending on your credit history and recent operating history, most banks will work with you on such financings.

Asset Ownership & Tax Benefits
Most equipment leasing is structured so that your company can deduct all or most of the lease payments for income tax purposes.  In addition, the buyout provisions of equipment leasing generally are nominal.  For most rapidly depreciating equipment such as computers, phone equipment, etc., the leasing company does not want to own your equipment at the end of the lease and will structure its agreements accordingly.

Purchasing Knowledge & Discounts
One significant benefit to equipment lease financing, especially through specialist firms, is your ability to make equipment purchases at better prices.  Your leasing company may be aware of the current value of the equipment you want to buy and may have contacts with distributors or directly with a manufacturer.  Obviously, a lower purchase price lowers the amount you need to finance and thus your monthly lease payment.

Sell-Side vs. Buy-Side Leasing
Most companies look to leasing firms as sources of capital.  Perhaps a better use of a leasing relationship is to integrate leasing options into your product or service line.  You can offer your customers complete flexibility in purchasing your products by giving them a chance to buy your goods over time.  Not only might it increase your sales, but sell-side leasing can also lower your financial risk and better your cash flow.  It can be an important component of your company's working capital.

Flexible & Unusual Financings
One of the more fascinating benefits of leasing is that many leasing companies can structure very creative financial transactions around very unusual assets.  Obviously any transaction has to make financial sense, but creative lease deals can have overtones of an equity investment.  A good leasing company is a great sounding board for your business when you are discussing offering new products and opening new markets.

Leasing, both on the buy- and sell-sides, can be an excellent financing tool for small businesses.  Whether you are a business looking to finance new equipment purchases for itself or an equipment manufacturer or dealer looking for ways to sell more products, it will be a worthwhile investment of your time to contact some of the regional firms in your area.