Wherever you are in your business journey, the need to add new equipment and assets will always be there. These assets and equipment not only have the potential to enhance your operations but also set your business up for success. Even better, you don’t always have to buy them, as another option is available, such as lease financing.
Essentially, lease financing allows your company to acquire the assets it needs to stay in business without buying them outright. Nowadays, lease financing has become a well-liked method for companies looking to fulfill their asset needs, from copiers to computers to office furniture. One of the best methods for companies to be on the cutting edge of their industry’s development is to lease equipment. Additionally, leasing equipment is far less expensive than buying it outright and enables you to keep your technology up to date with the ongoing development of new technologies.
The only way businesses can make the most of lease financing is to understand what it can do for them. To that end, here are some considerable benefits of taking out a finance lease for business:
1. Alternative uses of funds
Instead of taking out a loan or making an outright purchase, leasing allows businesses to use the remaining funds for necessary business investments or other operating costs. As a result, the number of funds consumed and upfront charges may decrease based on the leasing product utilized. Also, managing your lease has never been easier, as there are more innovative solutions than ever. Companies can now gain access to accounting software and tools that offer rational control and reporting features, enabling seamless management of leases. A lease accounting software like EZLease is an excellent solution for businesses to effectively manage and minimize financial drawbacks associated with their lease portfolios.
2. Simpler financing process
If you’re looking to obtain financing to buy a big piece of equipment, your lender will probably want to see at least a few years of your financial history. Leasing might be a preferable choice for businesses that are less developed or have already used most of their credit capacity. Most equipment vendors and leasing firms require a credit history of 6 months to a year. The leasing agreement is typically finalized more quickly than an equipment loan.
3. Tax advantages
Lease finance offers your company substantial tax advantages. For example, leasing frequently enables firms to fully deduct lease payments from current earnings while preserving working capital that would otherwise be inaccessible if you had to buy your equipment outright. To ascertain the advantages for your company, it is always a good idea to consult your tax expert.
4. Control cash flow
Managing cash flow may be the most crucial task for the success and well-being of a company. You can keep more money in the bank if you lease equipment without a sizable down payment. You can pay for running costs with the money or use it to make more purchases. Leasing can lower your upfront growth expenditures and give you the required cash flow. It will also enable you to immediately get the necessary tools and save some money for unexpected costs in the current fragile economic climate.
5. Access to modern equipment
When you acquire a piece of equipment, your exposure to innovation is restricted for that purchase. For basic machinery or equipment requirements, such as office furnishings, this might not matter. But if utilizing cutting-edge technology is crucial to your firm’s success, it may matter. It is simpler to update to newer, more valuable products as needed when you lease equipment. You are not required to sell your current inventory. Instead, you can merely improve what you already have with the new technology.
6. Better structure and terms than banks
Most banks demand larger down payments, additional collateral, compensatory balances, or stringent covenants. The financing could be linked to a variable interest rate. Fixed payments, flexible schedules, minimal down payments, and no additional collateral are all features of equipment leasing. Additionally, whereas leasing companies only place liens on borrowed equipment, banks can attach liens to your company’s assets, including receivables and inventories.
7. Lower chance of obsolescence
Leasing reduces technical and financial risks and is an excellent hedge against technological obsolescence. However, businesses need to be wise and vigilant when engaging in leases to replace their equipment after the term. A crucial step in determining how leasing could save costs and reduce the risk of technology obsolescence is to assess the total cost of current and previous lease programs. The lessor will bear the risk of obsolescence depending on the sort of lease contract you enter into.
8. Decreased costs for maintenance
Leasing not only enables cost-effective equipment acquisition but may also lower maintenance expenses. Usually, as part of the lease, the equipment supplier will take on maintenance duties. It shields your business against unpleasant surprises if equipment malfunctions. Additionally, it reduces the requirement to keep a sizable emergency cash reserve on hand in case of unplanned maintenance. Another underappreciated but significant advantage is that your team won’t have to spend time considering and making plans for upkeep.
Lease financing is the perfect solution when your business needs more funds to purchase certain assets or equipment. It doesn’t put any strain on your working capital. Instead, lease financing works upon a simple principle: “borrow it and make the payments on time.
”Additionally, it offers several other benefits, including tax returns (as evidenced by the information above.) However, you must understand that the equipment will remain with you for a specific period. Thus, you need to make sure you have a plan for this. Otherwise, it can end up being more expensive than buying equipment.