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Deferred rental payments, seasonal payments, quarterly payments, payments that begin low and increase through the lease term (“step-up” payments) and payments that begin high and decrease through the lease term (“step-down” payments) are several of the options available when structuring your lease.
Small Initial Cash Outlay
Equipment leases generally do not require a down payment as is the case with most loans. The cash which is required at inception of an equipment lease is generally applied to the rental payments.
Provided the lease is structured properly you may deduct the entire rental payment as a current operating expense for financial reporting and for income tax purposes.
Warranty Pass Through
Although the lessor is the owner of the asset you retain the full benefit of all manufacturers/seller’s warranties and guaranties.
Expanded Credit Availability
Provided the lease is structured properly, the ‘lease debt’ will not be listed as a liability on your financial statements and consequently may allow you to preserve your borrowing availability with your bank and other creditors. This will also result in improved debt-to-equity and earnings-to-fixed assets ratios.
Avoidance of Financial Restrictions
Many loan and credit line agreements significantly restrict additional borrowing or financing. In some instances, a borrower must obtain the permission of an existing lender to do business with another. Equipment leasing, as a rule, does not have these types of restrictions.
Simplified Credit Process
An equipment lease is generally easier to obtain than an equipment loan. It’s not uncommon for leasing companies to provide up to $75,000 in financing with only an application. Some leasing companies will go as high as $150,000 on the same basis. Most banks and commercial lenders require a complete financial package consisting of several years of financial reports and tax returns on the business and the principals.
- Flexibility of Structure
- Small Initial Cash Outlay
- Rent Expense
- Warranty Pass Through
- Expanded Credit Availability
- Avoidance of Financial Restrictions
- Simplified Credit Process