An equipment leasing option that works for you
The economic climate of the last several years has caused many business owners and municipalities to pay closer attention to how they fund needed equipment acquisitions. Matching payments to cash flows has become critical and the concept of using equipment financing or leasing to allow equipment to “pay for itself” has gained widespread acceptance. The tools available to a business owner for funding equipment acquisitions fall into two basic categories: financing (loans) and leasing.
Equipment financing, or loans, are relatively simple structures that allow you to spread the cost of a major capital equipment purchase over time. As the buyer of the equipment you will depreciate the equipment, expense the loan interest and benefit from any Section 179e deductions available to your company. Loan terms generally range from three to seven years but the length of term available may be dependent upon the age and type of equipment you are buying.
Most equipment financing and loans are done at fixed interest rates for the life of the agreement. Down payments may or may not be required based upon the credit strength of the borrower. For established companies with a good credit history, financing transactions typically provide 100 percent of the equipment cost, but may require that you make the first or first two payments at closing.
In a financing transaction, you are the owner of the equipment and the lender or finance company has a lien against it. Typically, you can pay off your loan early at any time during the term but most lenders will assess some type of pre-payment penalty based on the time remaining on the loan.
Loans or equipment financing are available from a variety of sources including banks, bank-owned equipment finance companies, independent finance companies and in some cases equipment manufacturers that have a captive organization to provide customer financing. Loans and equipment financing are generally available from most sources for vehicles and larger non-titled equipment such as grinders, large balers and other equipment used in MRFs, transfer stations, scrap yards and landfills. Equipment finance companies that specialize in financing waste handling equipment may also offer financing on containers, carts, compactors and portable restrooms.
There are a wide variety of leasing structures available to business owners. Each of them has different accounting and tax issues and it is highly recommended that any business considering equipment leasing consult its accounting and tax advisors to determine the leasing structure that best meets their needs.