Why lease versus purchase?
There are a number of advantages to leasing an asset versus obtaining a loan and/or purchasing an asset outright. Below are the most noteworthy among them:
- Leasing costs less You get fixed payments structured to fit your budget - rather than variable rate bank financing that is unpredictable over the term of the loan. You get the equipment you need at today's price, rather than tomorrow's escalated one. You pay only for the use of the asset, not the ownership. Your cash can then be used to support working capital requirements or other investments in your future.
- 100% financing There's no down payment with 100% financing, regardless of what you purchase. This frees up cash to be used elsewhere in your business, allowing a focus on growth and expansion. Not to mention, you might be using the leased product/service to generate revenue while you're paying off the lease.
- Off-balance sheet financing Your company's financial ratios - such as ROE and ROA - look better leasing versus borrowing.
- Preservation of credit Your existing lines of credit are unaffected, preserving your company's borrowing capacity. Also, leases are often completed without restrictive covenants.
- Tax advantages Your lease payments are considered an operating expense, so they're often completely tax deductible. By leasing, you avoid the alternative minimum tax trap -- caused by paying cash for equipment, then using accelerated depreciation for getting a tax break.
- Flexible and Convenient You can include many services in the lease payment, such as insurance, freight, service/maintenance contracts, freight, installation, training, and taxes. Additional equipment can be acquired without renegotiating existing loan covenants. Leases can be structured creatively to meet your specific needs.