If your company is facing problems with the acquisition of new equipment, you should consider equipment leasing. This option is perfect for companies that are not subject to credit. Or maybe your concern is more on the side of cash flow availability. Equipment leasing is used as financing method jointly with other loans.
Here we present you a few of the positive aspects of equipment leasing:
If the operations of your company involve the use of machinery and though you have high returns you are not able to obtain a loan, equipment leasing is for you. These companies will be more flexible when it comes to approving requests, more so than banks. In general, most case get approved.
Another advantage of equipment leasing is the fact that its payment is tax deductible. Additionally it will not alter the relationship between debt and cash flow because it is included as an expense and not the same way a loan would be.
Equipment leasing is also beneficial for companies that use technology that changes year after year, like the ones working in technology or health. Equipment leasing makes it possible to have high tech equipment without having to go through purchasing processes every year.
Given that the equipment leasing company is the final owner of the equipment, it incurs in less risks when renting it. Unlike banks, equipment leasing companies would process requests in a more efficient way.
Some of the drawbacks of equipment leasing are:
The main drawback is the fact that it is more expensive than buying the equipment through a loan. However it is a choice for those who cannot afford a loan. Refinancing is also more costly and the customer will pay a higher price because of the leasing fees.
The tax administration requires the leasing contracts a period very close to that of depreciation of equipment financed. This is to prevent the company tenant the excessive practice of accelerated depreciation agreeing to contracts that are too short.
Given that the company does not owner the equipment, the company cannot use depreciation. Tax savings by deducting total rents for a consideration the fact that the company cannot benefit from the tax savings for the depreciation.
Back leasing is another feasible option. You can reduce the effect of some of the mentioned drawbacks of equipment leasing when leasing some of your own equipment to a company that is in need of funds.
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