The Benefits of Commercial Equipment Leasing
Commercial equipment financing is becoming more and more common among businesses today. In fact, over 80% of businesses now lease at least part of their equipment because of the benefits.
Keep Your Cash
When you purchase new equipment, you have to come up with the amount for the purchase out of your own funds. Even if you finance part of it, you will likely be spending a good percentage of your available cash. Leasing will allow you to keep your cash on hand. Every business needs to hold on to their cash. Therefore, spending most of it on equipment does not make sense.
Keep Your Credit
Taking out a commercial equipment loan at a bank will result in using up some of your credit. With most businesses, there is a limit on how much credit can be extended overall. You will most likely need lines of credit in other areas of the business. If you can keep as much of your credit open as possible, this will benefit you overall.
Compared to getting a bank loan, leasing carries many favorable terms. With a bank loan, you are usually required a large down payment. Leasing usually requires a small down payment. Payment schedules on a bank loan are very rigid and must be on a tight schedule. Leasing payments can be flexible and work better with businesses. Bank loans can be associated with a changing interest rate. Leasing payments are fixed and make it easier to budget for your business expenses.
The cost of leasing equipment is fully tax deductible. Therefore, as a result your taxable income will be lowered. This is a huge benefit as it will ultimately save you money on your taxes. In addition to the income tax ramifications, it also has sales tax advantages.
In sharp contrast, when you purchase new equipment, you will be forced to pay the sales tax immediately. When you lease equipment, the sales tax is paid over the life of the equipment. As you use it, the sales tax will slowly be paid down. This results in a very large savings immediately when compared to purchasing.
Protect Against Inflation
Leasing allows you to actually take advantage of inflation. When you sign a lease with a company, your payment will be a fixed one over the life of the contract. The money that you have is slowly losing value every day thanks to inflation. By the time your lease is in the latter stages, your dollars will have depreciated quite a bit. Therefore, you are actually getting a better deal in the latter economy.
Perhaps the most convenient aspect of commercial equipment leasing is the streamlined paperwork process. When you enter into a lease, you know exactly what your payments will be for equipment over the life of the contract. Budgeting becomes a lot easier when you have this information. As far as accounting goes, you can throw the depreciation schedules out the window as they are now irrelevant. Your accountant will thank you.