Advantages of Equipment Leasing Businesses

Businesses need to increase their production capacity to scale up. Primarily, this calls for acquiring new equipment to augment the rate of their operation to meet the increasing demands of their products or service. With the price of equipment and machinery increasing, decision makers must find the most affordable ways to procure these equipment without incurring much expense. Many companies find a solution in equipment leasing. Multiple advantages make equipment leasing a rewarding strategy for businesses to secure their equipment needs. This article will point out x major ones.

#1 No Outdated Equipment Models

When a company buys heavy machinery and equipment that has a long service life, it is a good investment if the industry it operates in is not constantly revolutionized by technology. On the other hand, for a business that competes in an industry that is extremely receptive to advancement in technology and evolving business trends, equipment becomes outdated and even obsolete in no time. For these companies, instead of buying equipment and machinery with a high likelihood of being outdated in years to come, it is wiser to lease equipment and give them back after the expiration of the contract. They can then renew or find new lease agreements for equipment with the latest innovations to give them an edge and stay ahead of their competition.

#2 Tax Exempted Monthly Payments

Companies often think that purchasing an equipment is more advantageous over leasing when it comes to tax payment. According to an IRS Publication 946 Section 179, a company is allowed to write off its capital expenditure of equipment and reduce its tax payment by as much as $1,040,000. But they miss out on the detail that the expenditure on equipment must be less than $2,590,000 a year to avail the deduction. For companies whose expenditure on equipment exceeds this limit, it is better and more profitable to get a lease contract. According to provisions in the IRS rules, payments for equipment lease are entirely tax deductible regardless of the expenditure amount. Some experts claim that businesses can earn more than the total amount of the equipment lease on the tax savings.

#3 Option For Purchase

Some equipment leasing companies have provisions to sell equipment to clients at the end of a contract. Businesses that have a deep insight of changing market trends can capitalize on this provision to purchase equipment from the leasing company for a profitable price. Certain market changes are not consequential to factors like advancement in research and development but cyclical in pattern. If business owners can deduce from observation of patterns in market changes that new models of an equipment will be launched in a certain time, making the previous one obsolete. They can leverage this inference by purchasing the equipment at the end a contract for a discounted amount based on fair market value. Buying the equipment will cost you less than paying monthly amounts for leasing it in that time period. In addition, you’ll have the option to negotiate a new lease agreement when a new model of your equipment comes out.

#4 Saves Credit Score

Hardly any company has an amount of financial reserves it is willing or able to spend on capital equipment. As a solution they turn to a lender for a loan. When a company finances an equipment with a loan, it immediately shows up as an asset on their balance sheet and also adds to the company’s debt load which is recorded as low credit scores by credit agencies.

On the other hand, hiring equipment only requires an initial credit scrutiny by the leasing company which does not impact a credit score much. Loan debts are treated with more gravity by credit agencies than lease payments.

#5 No Payment Up Front

Banks and other lending institutions generally require a down payment up front as indication of commitment and to bring some resources to the table by the borrower. The amount required for the down payment depends on multiple factors including the loan amount, the borrower’s creditworthiness, outstanding debts and other terms of agreement. When all of these are factored in, the down payment amount can range to as high as 25% of the entire loan amount. For many companies who are expanding and already putting in money on other projects, the down payment amount can be quite a hefty sum. In contrast, an equipment lease agreement does involve the payment of such deposit or giving a collateral. All it needs is for the borrower to avail an insurance coverage for the equipment. 

#6 Affordable Monthly Payments

A major benefit of equipment leasing for business is its affordable and manageable monthly payments. For many companies who need new equipment, the amount they have to deposit up front for business loans and the accumulated interest are instant deterrents and paying from their revenue is out of the question. With equipment leasing, a company only has to pay an amount equivalent to a portion of the equipment’s price. This is much more viable for business as it allows access to the service of much needed equipment while keeping their outflow budget relatively low. The amount of payment over the time of usage is also considerably less as there is no interest charge and only paid for a portion and not the entire cost of the equipment.

#7 Easy Arrangement and Approval

The process involved in equipment leasing is simple and straightforward. There is not as much scrutiny on the part of the leasing company except for a few basic background checks. After application, a contract can be finalized between the parties within days. It is great for companies who have little time to spare and need to work on new projects with closing deadlines.

Final Thoughts

There are multiple ways of procuring equipment for businesses. Depending on a variety of factors, one may suit a business better than the others. As mentioned above, companies that choose equipment leasing will have many advantages which will benefit them in many ways. For business operators looking for Texas Equipment Leasing & Financing company, ProActive Commercial Lending Group is the people to contact. They have years of experience providing financial services to many companies who have greatly benefited from them. Your company could be one too. Visit their website and check out the variety of financial services your business can massively gain from.

Author’s bio. The author is an online blogger. The article is about the advantages of equipment leasing.