The Advantages of Leasing vs Financing
When considering whether to do an equipment lease or use a bank loan to fund your equipment purchase, it is good to consider the following items to make an informed decision:
- Information Needed for approval: With Equipment Lease approval process usually requires a simple one page credit application we use to approve a company up to $150k. A bank will require a full financial package including two years corporate and personal tax returns, personal financial statement, and interim financials.
- Time it takes to get an approval: Our credit approval process can yield a decision within 24-48 hours. A bank has to sift through the stack of financial information before they can make a lending decision and this can take usually take weeks. You will be using your new equipment funded by our lenders before a bank can even give you an approval!
- Down Payment Requirements: Most of our equipment leases require only one or two payments in advance, which are usually applied to your lease payments. We also do 100% financing, so you do not have to come out of pocket for your equipment. Banks can require 10-25% down from the borrower. They do this to minimize their exposure and risk in the loan. This high deposit requirement can significantly hurt the cash flow of a company who is relying on the new equipment to increase their revenues which can take a few months.
- Payments and Rate Structure: All of our equipment lease programs are fixed rate and payments for the term of the lease. Bank loan rates are usually variable. This means your rate and payments will change based on market conditions, which makes it challenging to budget for your loan payment each month.
- Security: Equipment leases typically only require a lien on the leased equipment. Banks tend to place blanket liens on a business, which includes all of the assets, receivables, and inventory. This filing gets reflected publicly as a UCC filing. Who wants to put up that much collateral to finance once piece of equipment?
A bank loan may also contain restrictive covenants on a business which requires that business to maintain certain financial ratios during the term of the loan. If those requirements are not met, the bank may call the loan. Equipment leases typically only require timely payment of the lease and do not place these unnecessary covenants on the business.
- Tax Advantage: Equipment leasing is a great tax write-off as you may be able to expense the entire lease payment. This “off balance sheet financing” option allows a business to reduce their net income by increasing their rental expense on an income statement, drastically lowering their tax liability. Banks break out the principal and interest on an equipment loan, so a business may only deduct the interest and a small percentage of depreciation. A bank loan will not yield as much of a tax write-off as an equipment lease.
Leasing – Everyone Is Doing It
Why everyone is leasing equipment for their business? There are many benefits that business owners can get from leasing programs to take advantage from IRS section 179.
According to the US Small Business Administration, 80% of businesses lease a portion of their equipment. These businesses include small family owned businesses to Fortune 500 Companies. Because of the myriad of benefits equipment leasing can provide, it has become a crucial tool for growing companies today.
Along with providing significant tax and cash flow advantages, equipment leasing can provide your business with a number of other benefits that allow you to maintain cash reserves, increase cash flow and help preserve your existing lines of credit. Equipment leasing also affords business owners the ability to grow their businesses without significant out of pocket expenses.
Here are the two most popular reasons people choose leasing:
1. You can write off 100% of your lease payments from your corporate income because the IRS does not consider an operating lease to be a purchase. This write off can even out pass the tax advantages of bonus depreciation and accelerated depreciation.
2. Speed. Bank loans and SBA loans seeming take forever and you have to provide a significant amount of tax return and financial information to obtain them. Because Equipment Leasing has a simplified underwriting process and typically doesn’t require and financial information, most approvals can come back in just a few hours.
Through our experience and understanding, we’re able to serve a diverse range of industries and markets with solutions tailor-made for our clients. Our passionate team of dedicated professionals takes great pride in the lasting relationships formed with our vendors.
Through our dedication to delivering exceptional service and our passion for building long-term relationships with our vendors and end users, we remain committed to achieving our vision of becoming industry leaders for those seeking unparalleled service from a nationwide lending provider