Leasing and financing equipment acquisition options

0
- By:

Courtesy of Waste Advantage Magazine

As the U.S. economy starts to emerge from hibernation and we begin to see signs of life, more executives are considering when they might need additional equipment to meet their business needs through this year and into 2011. Whether you are currently in the market for a new or used truck, a review of your finance and lease options is always timely. And since all finance providers are not created equally, it’s important to know what to look for when choosing a leasing or finance company.

How Are We Going to Pay for This?
Some companies choose to pay the full amount for their equipment in cash. This course of action may be an attractive option to some because it brings the satisfaction and security of knowing that no future payments will come due. However, before you take this route, it’s wise to consider whether you want to tie up your capital in an asset that is not as liquid as cash. In uncertain economic times, excess cash can make the difference between surviving or not.

Company owners who are not in a position to pay cash outright or simply do not wish to tie up their money, may want to consider the tax and accounting benefits that can be realized by financing or leasing. Along with other key benefits, doing so helps them match the expense of acquiring refuse equipment with its revenue generating capacity.

When is Leasing Right For Your Company?
Leases come in a variety of structures, but for our purposes here, we’ll consider them contracts for use of equipment for an established period of time in exchange for regular payments. Leases also specify details such as insurance requirements, default provisions and end-of-term options including purchase or return provisions. There are three main areas to explore when deciding if a lease is best for your company: 1) use of the equipment, 2) financial considerations and 3) accounting/tax advantages.

Equipment Use
Since leases can be built with a purchase option at the end of the term, they can minimize the risk of the equipment becoming obsolete. Leasing might be an appropriate way to meet the need without having to worry about what to do with the equipment at the end of the term. Likewise, the terms can be negotiated based on the estimated productive life of the equipment. So if you are concerned about resale value, maintenance costs or equipment efficiency once the term ends, you may choose to lease. In either case, leasing requires forethought about your immediate equipment needs and your short- to medium-term outlook for contracts, equipment values and economic conditions.

Financial Considerations
The primary financial benefit of leasing is that it conserves cash in the short term and spreads associated expenses over the life of the asset. Leases typically require just one or two payments at the beginning of the term plus the period rents. Lease plans can be negotiated according to the equipment’s useful life, which may have the effect of prolonging repayment terms (and thus reducing monthly payments). By conserving cash that would otherwise be tied up in capital expenditures, a company may be able to manage growth opportunities more appropriately.

Leasing and financing equipment acquisition options Jon Eide

As the U.S. economy starts to emerge from hibernation and we begin to see signs of life, more executives are considering when they might need additional equipment to meet their business needs through this year and into 2011. Whether you are currently in the market for a new or used truck, a review of your finance and lease options is always timely. And since all finance providers are not created equally, it’s important to know what to look for when choosing a leasing or finance company.

How Are We Going to Pay for This?
Some companies choose to pay the full amount for their equipment in cash. This course of action may be an attractive option to some because it brings the satisfaction and security of knowing that no future payments will come due. However, before you take this route, it’s wise to consider whether you want to tie up your capital in an asset that is not as liquid as cash. In uncertain economic times, excess cash can make the difference between surviving or not.

Company owners who are not in a position to pay cash outright or simply do not wish to tie up their money, may want to consider the tax and accounting benefits that can be realized by financing or leasing. Along with other key benefits, doing so helps them match the expense of acquiring refuse equipment with its revenue generating capacity.

When is Leasing Right For Your Company?
Leases come in a variety of structures, but for our purposes here, we’ll consider them contracts for use of equipment for an established period of time in exchange for regular payments. Leases also specify details such as insurance requirements, default provisions and end-of-term options including purchase or return provisions. There are three main areas to explore when deciding if a lease is best for your company: 1) use of the equipment, 2) financial considerations and 3) accounting/tax advantages.

Equipment Use
Since leases can be built with a purchase option at the end of the term, they can minimize the risk of the equipment becoming obsolete. Leasing might be an appropriate way to meet the need without having to worry about what to do with the equipment at the end of the term. Likewise, the terms can be negotiated based on the estimated productive life of the equipment. So if you are concerned about resale value, maintenance costs or equipment efficiency once the term ends, you may choose to lease. In either case, leasing requires forethought about your immediate equipment needs and your short- to medium-term outlook for contracts, equipment values and economic conditions.

Financial Considerations
The primary financial benefit of leasing is that it conserves cash in the short term and spreads associated expenses over the life of the asset. Leases typically require just one or two payments at the beginning of the term plus the period rents. Lease plans can be negotiated according to the equipment’s useful life, which may have the effect of prolonging repayment terms (and thus reducing monthly payments). By conserving cash that would otherwise be tied up in capital expenditures, a company may be able to manage growth opportunities more appropriately.

Customer comments

No comments were found for Leasing and financing equipment acquisition options. Be the first to comment!