An equipment leasing decision can be the best alternative
for small businesses when weighed against paying out a
large sum of cash or going to the bank for a loan to
acquire or upgrade equipment. Having your cash reserves
invested in equipment makes you asset rich and cash poor.
Cash poor companies cannot respond to changing market
conditions or take advantage of new opportunities.
Today, more than 80% of all U.S. corporations lease some or
all of their equipment. It is the use of equipment, not
ownership of equipment that generates profits. This simple
precept explains the rise of equipment leasing activity,
especially as equipment life cycles shorten in this
high-tech age. Whether opening a new business, expanding
existing facilities or opening an additional location, the
method you choose to acquire equipment can have a profound
impact on your business, credit and cash flow.
Secret #1:
Nearly any type of business equipment can be obtained
through equipment leasing. With a lease, you can specify
the manufacturer, the model number, even the source. You're
covered by all conventional manufacturers' warranties. And
because lease payments are usually lower than other forms
of financing, your leasing dollar allows you to acquire
more of the equipment your business needs or more advanced
equipment. With an equipment lease, you get 100% financing
so the amount of cash needed up-front is reduced. Most soft
costs can be included: delivery charges, installation,
training, and software to ensure that the equipment is
productive immediately, speeding your return on investment.
Secret #2:
Bank loans can be dramatically more expensive than
anticipated because of the large security deposit that is
required. Typically, a bank will want 20% to 40% as a down
payment for equipment. The result is that the stated APR
and the effective APR are extremely different. A stated 8%
bank rate with a 25% down payment is actually equal to a
21% APR on a five year loan.
Secret #3
Even if you have the cash to purchase your equipment,
purchasing is rarely, if ever, the best choice. With
equipment leasing, cash can be used for other business
requirements such as expanding sales, starting new
marketing programs, offering quantity discounts,
replenishing inventories, opening a new line of business,
or increasing cash reserves. Using cash for necessary
business expenses that cannot be financed is much more
intelligent decision-making than spending it on equipment
that is worth less and less as time goes by. If you decide
not to lease you will have to come up with the entire
amount for a cash purchase or a sizeable down payment, as
well as higher payments for traditional financing.
Secret #4
With the lower, fixed-rate payments of an equipment lease,
you're protected against inflation. Cash outlays are
deferred, as compared to an up-front purchase. Inflation
will then lessen the cost of future lease payments, since
the payments will be made with "cheaper" dollars. You will
be making your monthly payments to the leasing company with
ever-inflating dollars during the term of the lease. This
actually reduces the cost of financing to you in real
dollars, a tremendous advantage that is often overlooked.
Secret #5:
Leasing equipment offers a wide range of benefits, from
consistency with expenses to increased cash flow. But
perhaps the most significant advantage of leasing is the
ability to maintain up-to-date equipment. Leasing allows
you to easily and affordably add equipment or upgrade to a
completely new piece of machinery to meet future needs.
This lets you transfer the risk of being caught with
obsolete equipment to the leasing company.
Secret #6:
With the scheduled updating of your business equipment
offered through equipment leasing, you can maintain a
competitive edge, keeping you ahead of your competition.
With an equipment lease, upgrading to newer technology
during or after the lease is easy. In contrast, when
equipment is purchased with cash or bank financing, there
is an incentive to postpone any upgrade until the original
investment has been recouped through depreciation, which
hinders your flexibility. A planned replacement program
avoids obsolescence and keeps you up to date with the
latest state-of-the-art technology. In addition, ownership
has an often-overlooked disadvantage - equipment
disposition. The costs of removal, environmental fees (in
the case of some types of equipment, such as computers),
and remarketing, which under the terms of outright
ownership can be significant, are avoided with leasing.
In summary, there are many "Secrets of Equipment Leasing"
that require significant research to uncover. These
"Secrets" can be determining factors in the survival and
profitability of any business enterprise. As such, they
warrant in-depth consideration to determine their potential
contributions to every individual equipment acquisition
situation. Nearly 100% of the time, bank loans and cash
purchases are always significantly less beneficial and less
advantageous than equipment leasing.
----------------------------------------------------
Milton Franklin, is a Founder of Nationwide Equipment
Leasing LLC, an equipment leasing company that also offers
Unsecured Business Lines of Credit. His company provides
solutions to the current economic and financial crisis in
the United States He can be reached at 800-395-4908. Go to
http://www.neleasing.com/application-form.cfm and request
Leasing Information to receive a free copy of his eBook,
"Secrets of Equipment Leasing".
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