Benefits of Equipment Leasing vs. Other Finance Options (OPINION)

Most businesses can use a little help with dealing with the day-to-day challenge of keeping the doors open in almost any type of economy. Many business owners want to use every opportunity to get the most out of their business while maintaining a steady cash flow with an eye toward future expansion. That is the nature of business.

One way to keep your business moving ahead without jeopardizing your operating capital is to consider equipment leasing. While buying a piece of equipment with cash on-hand might make sense in some situations, leasing that same piece of equipment can have benefits not readily apparent to the business owner.

ELFA — or the Equipment Leasing and Finance Association, an industry organization that monitors equipment leasing and financing companies across the country — released the results of its 40th annual survey of the industry at the end of July. It reported the industry saw new business volume grow by 6.7 percent in 2014, the fifth consecutive year that businesses have increased their spending on capital equipment.

ELFA also reported in its “What’s Hot, What’s Not In Equipment Leasing for 2015” report that, according to a survey of members in 2014, leasing construction equipment, railroad equipment, trucks and/or trailers and machine tools remain high for 2015 and the aircraft and high-tech equipment and computer equipment categories improved the most in year-over-year comparisons. Categories include agriculture, aircraft, construction, industrial and manufacturing technology, IT/computer, medical equipment, oil and gas, railroad and trucking.

There are five major benefits that come to mind that argue in favor of leasing equipment rather than buying it outright or financing equipment purchases.

The first benefit of leasing equipment is that some business owners may be able to get 100 percent of the amount financed, rather than having to pay a down payment in order to finance purchase of the same equipment through a more traditional loan.

Another advantage to leasing equipment is that the terms for leases may be much more flexible than those for purchase loans. Your representative may have more opportunities to structure the plan and payments in a way that is more favorable to a business owners’ fiscal schedule. Traditional purchase loans usually are much more rigidly structured and may not work as well with a business’ calendar.

A big advantage to leasing equipment is that leased or rented equipment is treated differently on the balance sheet than purchased equipment, and, therefore, usually creates a tax advantage to the business rather than a tax liability. When a business pays for equipment with cash, it is paying for that equipment with post-tax dollars, which is essentially adding those taxes to the sales price of the equipment itself. Leasing equipment may allow the owner to use pre-tax dollars and classify that expense as a deduction against revenues before taxes. Since the leasing company retains ownership of the equipment during the long-term rental agreement, the owner can then write off the lease payment as an expense. Talk to your accountant to find out if leasing will benefit your business at tax time.

Another benefit to leasing equipment is that professionals will evaluate the equipment for the business owner, there is no need to be an expert about the equipment in order to know the exact value of it. And some lease terms may allow for periodic upgrades to the equipment so the business can have the most up-to-date equipment on hand to benefit the customers.

And one of the most important reasons to lease equipment rather than buy it outright is being able to keep your operating cash in order to do what it needs to do — operate your business. This is an important benefit for startup businesses to consider. Some businesses may need more than a year’s worth of operating capital on hand to successfully navigate opening. That can be hard to accumulate. 

Joe Stockton is a commercial lender for Arvest Bank in Springdale. He can be reached at 479-756-7051 or via email at [email protected].