Equipment Leasing

In a business environment where retaining cash within the business makes a lot of sense instead of making capital commitments many companies go down the route of a financing the acquisition of new assets using equipment leasing.

Regardless of whether you have a well established business or have a younger business when you wish to expand cash is often a constraint. One approach to manage your cashflow is to lease equipment instead of buying it outright. Another option would be to rent equipment but it is often not cost effective as a long term option versus using equipment leasing.

Why do companies choose equipment leasing?

Firstly there are a number of cashflow benefits which are immediately apparent when choosing the equipment leasing option. Instead of one substantial payment at the time that you order the equipment, the cost of the equipment finance is spread over a number of regular payments. These payments can be usually be aligned with the specific requirements of the business, including seasonal cash flow circumstances.

In general payments amounts are fixed for the term of the lease agreement at a known interest rate, if desired. Customers are protected from changing interest rates, enabling accurate budgeting and cash flow projections.

It is advantageous to pay for equipment over the period that the system or asset is delivering benefit to the business. Payments can be structured so that they match the realisation of the benefits in terms of increased revenue or cost savings through improved productivity or improved processes.

Payment profiles can normally be structured to suit the available budgets, project roll-out programmes and/or cash flow requirements.

Secondly there are some tax benefits by adopting equipment leasing, the most important being that leasing payments may be offset against tax rather than adopting more complex capital allowance calculations.

Thirdly there are often flexibility benefits when using equipment leasing. For example you may be in an industry where the rate of change of technology is quite fast and a lease may allow you to upgrade ageing or obsolete equipment for more technically advanced equipment as time progresses.

The fourth reason that equipment leasing often makes sense if that you are not constrained to acquiring just the item of equipment you can afford to pay for in terms of the total capital cost at the time of purchase. Regular payments enable you to select the equipment that is most beneficial for your business need, rather than just selecting the item of equipment that you can afford at the time.

The fifth reason is that at the end of term, equipment can be returned to the lessor avoiding equipment disposal issues or costs, which is becoming increasingly more significant as recycling and disposal obligations are becoming more onerous as the years pass.
AFG banner