Why lessees like leasing?
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For most companies, the most attractive benefit of leasing is its low cost. However, there are many other reasons companies choose to lease rather than purchase equipment via conventional financing. Since each company's situation is unique, we've listed several reasons below, any one of which may be significant enough to cause leasing to be the most attractive financing alternative.

Additional advantages of leasing include...

   
  • Lease rental payments are made from pre-tax rather than after-tax earnings.
    A lessee may be able to amortize the cost of equipment faster through tax deductible rentals than through depreciation and after-tax cash flow.

  • On or off balance sheet
    A lease can be structured so as to be "on" or "off" balance sheet for financial accounting purposes. The choice depends on accounting objectives of the lessee, and other cost trade-offs that the lessee is willing to make to achieve such objectives.

  • Loan covenants
    Depending upon the language and intent of covenants in existing loan and note agreements, a lease may provide financing not otherwise permitted by them.

  • Fixed rate lease payments
    A predetermined rent payment schedule permits a lessee to more accurately predict its future equipment costs and cash needs. In addition, by leasing major equipment items, a lessee knows the exact amount of future payments and avoids the risk of fluctuations in the cost of funds.

  • Payments coordinated with cash flow.
    Within certain limits, payment schedules can be designed to coincide with earnings generated from the equipment use. Seasonal activity patterns or projected business growth can be taken into consideration. Because the timing of lease payments can be arranged to follow normal business cycles, leasing offers a flexibility that may not be available to a lessee with other financing methods.

  • Convenience
    Leasing is often more convenient than alternate means of financing. Documentation is usually simple and more flexible than other sources of capital, such as debt and equity.

  • Capital Conservation
    Leasing allows an additional opportunity to put valuable capital to work for corporate expansion, research, inventory purchases and other profitable uses.

  • 100% Financing
    Leasing can cover the entire cost of the equipment, including freight and installation, without down payment or compensating balance requirements.

  • Preservation of Credit Lines
    Leasing preserves existing lines of credit for previously earmarked projects, short term or seasonal needs and other financial priorities, while at the same time creating another valuable credit source.

  • Obsolescence Protection
    Leasing can make in time equipment replacement easier to achieve. This can be achieved by structuring a lease term equal to an equipment's economic rather than depreciable life, eliminating ownership's natural tendency to "make do" and postpone replacement until depreciation has run its course.

  • Hedge Against Inflation
    The outright purchase of equipment involves the partial recovery, through depreciation, of the original investment. Taking inflation into consideration, the recapture of this investment is accomplished with tomorrow's less valuable dollars. Leasing has the opposite effect, inflation continually decreases the net cost of the rental payments, as you are paying with tomorrow's eroded dollars.

  • Overcome Budget Limitations
    Leasing can provide a prudent method of dealing with budget ceilings that preclude the acquisition of needed equipment. It is frequently possible to provide a lease to match available budgeted dollars and at the same time allow for the procurement of far more equipment than possible under other purchase plans.

  • Utilization of Tax Benefits
    Leasing can offer low cost financing by the lessor retaining certain tax benefits, such as the Investment Tax Credit and accelerated depreciation, which the lessee can not fully utilize. The savings generated by utilizing these benefits can be passed on to the lessee in the form of reduced rental payments.


 
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