You have probably heard of the tax benefits of leasing equipment and vehicles through your company. In short, when you lease your gear, truck or passenger vehicle your entire monthly payment can be recorded as a rental expense on your income statement. Obviously, this lowers your taxable income at year-end and can reduce your related tax bill. In contrast, a bank loan or finance contract allows only for deductions of interest expense and depreciation, not the entire payment.
When comparing equipment and vehicle leasing options with a bank loan, often a lease may not look like a lowest cost solution. And it’s true: On secured loans, we generally do not beat the bank on posted annual percentage rates (APR%). But wait! What if you do have significant tax savings? Wouldn’t that offset the cost of your lease? Bingo.
Besides the potential for tax savings, our equipment and vehicle leasing facilities are an alternative source of funding. Leasing provides diversity of financing (different eggs, more baskets) for your business, while helping you contain and manage operating costs of revenue generating assets over a fixed term.
So what does that mean, exactly?
While your bank may provide you with the apparent lowest cost of borrowing — as you may suspect, there are always trade-offs: Consider processing time, the usual collateral security pledges, general security agreements, and personal guarantees. Our leasing services are faster, with lower down payment requirements, and generally do not encumber your other company assets.
Leasing equipment and vehicles for business is a sound alternative, especially for early stage companies and those which may be feeling credit leverage due to growth. While financing through a bank may lower your total cost of borrowing in the long term, when considering cash management, a bank loan or finance contract may actually require greater down payments and discipline (monthly reports and bank covenants) over the short to medium term.
So, why is there a consistent appeal to look at a leasing solution?
Simple: C A S H F L O W. Total cost can be calculated in a few different ways. We often forget that there is a cost to having cash available as you need it: for operations, for re-investment, for liquidity, for flexibility. Without cash on hand, a business is cornered — restricted in options and mobility.
Lease structures generally require a lower initial upfront payment (down), can offer lower monthly payments through deferred principal repayment (residuals) and often provide clear, fixed cost end-of-term purchase options (compared to standard rental contracts). With our leasing solutions we offer you a way to improve and enhance the cash flow related to the fixed assets you require to make your company work.
The answers are not always easy. Mostly, “it depends” on your situation, on the age, type and value of equipment, on credit history and the relative financial strength of your company. But please, by all means, let’s have the conversation. Give me a call, text or drop a note via email to talk about your requirements. Thanks!