There are many reasons why companies lease their equipment.  Leasing provides flexibility and protection against technological obsolescence.  Leasing allows a company to better match cash outflow with revenue production through the use of equipment.  Leasing conserves valuable working capital and bank lines.  Leasing is efficient, convenient, and allows for 100% financing.

Do you have some equipment in mind that you would like to lease?   Get a monthly payment estimate from our Online Equipment Lease Calculator.

Top Ten Reasons Why Companies Lease

1. Purchasing Power. Lease financing allows the lessee to acquire more and/or higher-end equipment.

2. Balance Sheet Management. Certain types of leases help the lessee better manage the balance sheet and improve the overall financial picture, by conserving operating capital and freeing up working capital and bank credit lines for inventory, expansion and emergencies.

3. 100 Percent Financing. With leasing, there is no down payment. The term of the lease can be matched with the useful life of the equipment.

4. Asset Management. A lease provides the use of equipment for specific periods of time at fixed payments. It assumes and manages the risks of equipment ownership. At the end of the lease, the lessor disposes of the equipment.

5. Service Additions. Many lessees choose to structure their leases to include installation, maintenance and other services, if needed.

6. Tax Treatment. Leasing offers the option of deducting 100 percent of the lease payment as a business expense.

7. Upgraded Technology. Leasing provides companies with the ability to keep pace with technology. The lessee can upgrade or add equipment to meet ever-changing needs.

8. Specialized Assistance. Lessors are specialists in equipment leasing and financing, and understand capital equipment markets.

9. Flexibility. There are a variety of leasing products available, allowing the lessee to customize a program to address needs and requirements - cash flow, budget, transaction structure, cyclical fluctuations, etc.

10. Proven Equipment-Financing Option. Over 30 percent of all capital equipment in the United States is acquired through leasing. In fact, eight out of 10 companies lease their equipment.

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Who Leases Equipment?

Eight out of ten American companies lease all or some of their equipment.  Each year more companies, particularly small companies, choose to procure new productive equipment through leases rather than loans.  Companies that lease tend to be smaller, growth and technology oriented organizations.  According to the Equipment Leasing Association, leasing continues to be the most widely used method of asset-based financing in the U.S., accounting for approximately one-third of the external financing of capital investment.  Over 80% of small businesses agree equipment leasing is a good business strategy according to a 2004 survey of SBA State small business winners. The SBA survey found that 65% of small businesses currently lease equipment. When it comes to putting down a large sum of cash or going to the bank for credit to buy or upgrade equipment, an equipment leasing option can be a better alternative for your business.

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The Difference Between A Loan & A Lease

• Loan L: A loan requires the end user to invest a down payment in the equipment. The loan finances the remaining amount.

• Lease J: A lease requires no down payment and finances only the value of the equipment expected to be depleted during the lease term. The lessee usually has an option to buy the equipment for its remaining value at lease end.

• Loan L: A loan usually requires the borrower to pledge other assets for collateral.

• Lease J: The leased equipment itself is usually all that is needed to secure a lease transaction.

• Loan L: A loan agreement usually includes restrictive covenants that require the customer to maintain certain financial ratios that may restrict the customer's ability to borrow future funds.  In the event the customer violates one or more of the covenants, the lender has the right to demand payment in full of the outstanding loan amount even though the loan payments have been made on time.

• Lease J: A lease does not contain restrictive covenants that limit the lessee's ability to borrow future funds.  As long as the lessee continues to make their lease payments, the lessor can not disrupt the lessee's use of the equipment or demand the immediate payment of the outstanding lease payments.

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• Loan L: A loan usually requires two expenditures during the first payment period; a down payment at the beginning and a loan payment at the end.

• Lease J: A lease requires only a lease payment at the beginning of the first payment period which is usually much lower than the down payment.

• Loan L: The end user bears all the risk of equipment devaluation because of new technology.

• Lease J: The end user transfers all risk of obsolescence to the lessors as there is no obligations to own equipment at the end of the lease.

• Loan L: End users may claim a tax deduction for a portion of the loan payment as interest and for depreciation which is tied to IRS depreciation schedules.

• Lease J: When leases are structured as true leases, the end user may claim the entire lease payment as a tax deduction. The equipment write-off is tied to the lease term, which can be shorter than IRS depreciation schedules, resulting in larger tax deductions each year. The deduction is also the same every year, which simplifies budgeting (Equipment financed with a conditional sale lease is treated the same as owned equipment.)

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• Loan L: Financial Accounting Standards require owned equipment to appear as an asset with a corresponding liability on the balance sheet.

• Lease J: Leased assets are expensed when the lease is an operating lease. Such assets do not appear on the balance sheet, which can improve financial ratios.

• Loan L: A larger portion of the financial obligation is paid in today's more expensive dollars.

• Lease J: More of the cash flow, especially the option to purchase the equipment, occurs later in the lease term when inflation makes dollars cheaper.

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Last modified: 02/07/08