Today, eight out of 10 American companies lease some or all of their needed equipment.
Leasing is flexible
Companies have different needs, different cash flow patterns, different - sometimes irregular - streams of income. For example, start-up companies typically are characterized by little cash and limited debt lines. Mature companies might have other needs; to keep debt lines free, to comply with debt covenants, and to avoid committing to equipment that may quickly become obsolete. Therefore, your business conditions - cash flow, specific equipment needs and tax situation, may help define the terms of your lease.
Moreover, a lease provides the use of equipment for specific periods of time at fixed rental payments. Therefore, leasing allows you to be more flexible in the management of your equipment.
Leasing is practical
By leasing, you transfer the uncertainties and risks of equipment ownership to the lessor, which allows you to concentrate on using that equipment as a productive part of your business.
Leasing is cost effective
Equipment is costly and some of the costs are unexpected. When you lease, your risk of getting caught with obsolete equipment is lower because you can upgrade or add equipment to best meet your needs.
Further, your equipment needs can change over time due to changes in your company, such as diversification. Leasing allows you to stay on the cutting edge of technology.
Sophisticated business managers have learned that the primary benefits of higher productivity and profit come from the use of equipment, not owning it.
Leasing has tax advantages
Rather than deal with depreciation schedules and Alternative Minimum Tax (AMT) problems, you, the lessee, simply make the lease payment and deduct it as a business expense.
Leasing helps conserve your operating capital
Leasing keeps your lines of credit open. You don't tie up your cash in equity. Also, you avoid costly down payments. With other advantages such as off-balance sheet financing, leasing helps you better manage your balance sheet.
Example of Leasing versus a cash loan or purchase