Share:

Equipment Leasing – Six Surprising Benefits

Up to 85 percent of small- and mid-sized businesses prefer equipment leasing, and enjoy benefits that extend beyond the prospect of conserving cash.

This year, many mid-sized businesses will face an important decision that has more considerations than you might realize: Is equipment leasing or buying the better option for replacing or upgrading technology, increasing productivity or launching new product lines?

Key Takeaways
  • Beyond conserving cash, equipment leasing often eliminates maintenance worries and the burden of disposing of used and out of date equipment.

  • Leasing also enables businesses to determine their true equipment needs before committing a lot of capital to a purchase or a long-term deal.

There is no one right answer since every company is different. However, equipment leasing offers advantages that are often overlooked such as reducing business risk and improving your financial flexibility.

The most obvious benefit of equipment leasing is conserving cash. Cash is king, and leasing allows you to hold onto more of yours to take advantage of opportunities and navigate changing business conditions.

"Mid-sized businesses are more optimistic about growth, despite uncertainties. But they also want to conserve cash," says Tom Moosey, Equipment Leasing Leader at GE Capital Americas.

In other words, leasing allows you to keep your working capital for its intended purpose. On top of that, leasing can often allow you to get a more expensive piece of equipment than you could afford to purchase.

LeaseBuy_380x290

Up to 85 percent of small- and mid-sized businesses lease equipment, from office copiers and computers to corporate jets, trucks, railroad cars, and even steel mills. Part of the appeal is the realization that most companies generate revenues--and profits--by operating machinery, not by owning it.

Here are six surprising benefits of equipment leasing you should consider:

Make your financial situation less taxing.

Equipment leasing can be less taxing, quite literally -- your lease or rental payments may be fully deductible from taxable income, depending on the type of lease you select. However, that isn't the only way that leasing can reduce the strain on your financial situation. For example, leasing can save you the time and difficulty of finding someone who will extend credit for you to purchase equipment. Making monthly payments under a lease also allows you to more easily budget funds and be prepared for unexpected expenses. And lease financing is separate from your revolving lines of credit or other primary lines with your bank, keeping that financing available for other needs as well.

Determine your true equipment needs.

Leasing allows you to mitigate all sorts of risks that may not be top of mind. A short-term lease, for example, can allow you to determine if equipment really fits your needs before you commit a lot of capital to a purchase or long-term deal.

Eliminate maintenance worries.

Aging equipment can break down, costing you a lot not only for the repairs but in the disruption to your operations. Leasing companies often are responsible for maintaining the equipment, removing this burden from your staff. When equipment is leased, you simply turn it in and upgrade to a new model, often with little or no increase in monthly payments.

“One often overlooked benefit of leasing is that it solves the problem of what to do with used equipment -- five years later."
Avoid the cost and uncertainty of selling used equipment.

The amount of effort it takes to manage selling used equipment and the uncertainty in future equipment values makes it very difficult for most companies to manage. Your leasing company can maximize the proceeds from used equipment which will ultimately help you up-front with a more competitive lease rate and save you from worrying about and bearing the burden of a drop in equipment values.

The amount of effort it takes to manage selling used equipment and the uncertainty in future equipment values makes it very difficult for most companies to manage. Your leasing company can maximize the proceeds from used equipment which will ultimately help you up-front with a more competitive lease rate and save you from worrying about and bearing the burden of a drop in equipment values.

Reduce cost of underused equipment.

Leasing can provide protection if you need to use equipment less frequently than you expected. As Moosey notes, “we’re moving into an environment with more innovative products, such as usage-based and rebate leases." For example, under a program offered by GE Capital, Transportation Finance, at the expiration of a fair market value lease for a fleet of trucks or trailers, customers get money back if the mileage is lower than anticipated. These new programs have many advantages. For example, in the past a trucking company that leased 50 sleeper trucks would pay an additional charge for the trucks that had extra mileage, but would receive no benefit for the trucks under mileage. Under some of the new programs, the two can offset each other, providing a substantial savings.

Avoid environmental issues.

When you buy equipment, usually the last thing on your mind is dealing with complicated environmental regulations when you are ready to dispose of that equipment many years into the future. “One often overlooked benefit of leasing is that it solves the problem of what to do with used equipment -- whether it’s a one-ton front loader or obsolete computer equipment -- five years later," Moosey says. Let your leasing company worry about that as they have experience with authorized equipment disposition companies who can safely take care of the disposal.