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Give me Ten Reasons Why my firm should Consider Lease Financing!

Guest post by: Stan Prokop

Article Overview: The article provides information into the often intangible benefits of an equpment financing transaction considered by firms who acquire capital equipment and other assets.

Give me Ten Reasons Why my firm should Consider Lease Financing!

Equipment lease financing is an alternative choice for firms who wish to acquire capital equipment and other assets. Typically the other two methods to acquire such assets are either a cash purchase, or a loan of some sorts, usually via a bank.

The lease financing solution can frequently offer significant cost savings to the borrower, know as the ‘lessee ‘. However, this is not just an expense strategy; there are numerous other reasons why this type of financing should be considered.

As an example, a lease transaction that requires only a low down payment might assist the company who has a lot of working capital tied up in receivables and inventory. Receivables and inventory typically represent the largest components of a company’s working capital.

If a customer chooses to purchase the equipment instead they are in effect giving up certain key rights they have in a lease – for example, upgrading equipment, early cancellations, etc.

Normally when a customer considers either a lease or buy decision the business owner or financial manager would prefer to focus on ‘ hard dollar ‘ savings ; while this is optimal of course many of the benefits of leasing in effect are intangible and should still be considered as part of the acquisition strategy. Let’s look at some of those intangible benefits.

1. Credit Power – many lease firms have less restrictive credit qualifications than banks or other financial institutions. This is more so the case when the lessor is actually the manufacturer of the equipment!

2. Final Disposition – the company avoids having to dispose of the assets at the end of the term of the lease

3. Timing is everything – Lease approvals tend to be faster to obtain than a loan or bank type financing

4. Payment alternatives – many lessor allow skipped payments, seasonal payments and structured payments – example : A snow plough operator might request lower payments in summer when business is slow, etc

5. Bank lines untouched – in the current economic and banking environment businesses find it more difficult to access, or even maintain their bank lines – leasing leaves those lines untouched

6. Budget issues – Leasing eliminates one the of largest obstacles to a customers ability to acquire equipment – the cost of the machine. Many firms have budget issues and the lease strategy allows them to in some ways circumvent that strategy and pay the lease through an operating budget, not a capex budget

7. When a customer is concerned about warranties or maintenance of the equipment he has significant leverage, via payments, to influence a high level of service from the manufacturer or lessor.

8. Use of asset – if a customer over uses an asset he does not necessarily have to reimburse the lessor

9. Down payment – Leasing requires only a small down payment

10. Balance Sheet optics – Properly structured leases can have the effect of enhancing the customer’s balance sheet as the liability does not appear on the balance sheet – Customers want to use equipment to generate profits, they don’t necessarily want to own it.

In summary, yes the business owner and manager would prefer a hard dollar evaluation of any asset acquisition, but we have shown that there are many intangibles to consider also, many of which could benefit the firm in a number of ways and have a significant impact on their business growth, financing, and profit.

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Article Tags: intangible financial benefits, lease benefits



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