Getting Started with Leasing
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Why Do Most Companies Lease?
Cash Flow! Leasing allows companies to build a cash reserve, free up credit lines, and receive huge first year tax incentives. View our short presentation below to see how leasing helps small to medium size businesses grow to be much more.
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Conservation of Cash
Cash Flow is critical to the success of any business. Oftentimes, people are lulled into thinking that paying cash is a good way to acquire equipment because doing so avoids finance charges, interest expenses, and results in lower total cash outlay. In reality paying cash can be the most expensive way to solve the problem.
Liquidity is Critical: You must have cash reserves! This can become an outright survival issue when slow paying customers, slow sales, or unexpected expenses put pressure on cash reserves.
Conservation of Bank Lines
An available line of credit is an extremely valuable tool to address unforeseen emergencies, reducing those open lines by using them to finance equipment can be dangerous. Furthermore, bank terms, appetites, and flexibility on equipment transactions range from “less than optimum” to “downright difficult.
Avoiding Bank Restrictions: Leases do not include blanket liens, restrictive covenants, rate escalator clauses, “call anytime” provisions, compensating balance requirements, or any other items that are part of traditional lending agreements.
100% Financing: Leases can be utilized to cover everything that you require to make your equipment work for you. This includes software, installation costs, related leasehold improvements, training and even some supply items. This further minimizes your initial costs and allows you to earn profits from your equipment faster.
100% Tax Deductible
Article 179: Section 179 of the IRS Tax Code allows a business to deduct the full purchase price for qualifying equipment purchased or financed during the tax year. As such, by leasing equipment and deducting the full purchase price you essentially get “free” usage of your equipment for over a year.
Direct Tax Expensing: Companies that do not qualify or choose to employ the Article 179 Alternative, lease payments are written off as they are made. This eliminates the need for depreciation schedules and allows faster write off. This results in increased cash flow for your customers.
No Obsolescence
Many companies fear that the equipment they buy will wear out or their needs will change before they are able to depreciate it fully. A lease can be written for a term that corresponds to how the company feels the equipment can be used efficiently. At the end of the term the equipment may be returned and a new lease can be written for new equipment that best suits the customer’s needs
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9 Reasons to Lease
1.Article 179 每 Section 179 of the IRS Tax Code allows a business to deduct the full price purchase price of qualifying equipment purchased or financed during the tax year. As such, by leasing equipment and deducting the full purchase price you essentially get “Free” usage of your equipment for over a year.
Example: You buy a $100,000 piece of equipment and finance it on a 60 month lease/purchase contract with a monthly payment of about $2200. If you are in a 34% bracket your first year write-off comes to $34,000, which is enough to make the first fifteen lease payments (34,000 2200 = 15.45).
2.Direct Tax Expensing 每 Companies that do not qualify or choose to employ the Article 179 Alternative, lease payments are written off as they are made. This eliminates the need for depreciation schedules and allows faster write off. This results in increased cash flow for your customers.
3.“100% Plus” Financing 每 LeaseStation leases can cover everything you need to make your equipment work for you. This includes software, installation, related leasehold improvements, training and even some supply items. This minimizes your initial costs and allows you earn profits from your new equipment faster.
4.Proven Alternative 每 Leasing is a well accepted concept. Over 32% of all equipment acquired in the US is acquired under a lease contract. This makes leasing the single largest form of external corporate finance in the country. Over 80% of companies 每 from small start ups to “Fortune 500∪ giants 每 lease some or all of their equipment.
5.Variable Payments 每 Lease payments can be matched to project revenues, seasonal cash flow variations, budget limitations and other challenges. The need to divert cash or add to loan balances is removed. Our leases can be structured with no payments for up to six months, longer amortizations, PUTs, TRACs or other optional alternatives to lower payments even further.
6.Financial Reporting Advantages 每 We can structure leases to meet FASB requirements for “off balance sheet” accounting treatment. Since the total committed lease payments now show as a footnote rather than as a liability the overall ratios are improved and there is less risk of lending covenant violations.
7.Protecting Bank Lines 每 Banks are great for short term needs and you should use them in that way. An available line of credit is an extremely valuable tool to address unforeseen emergencies. Therefore reducing those open lines by using them to finance equipment can be dangerous. Furthermore, bank terms, appetites and flexibility on equipment transactions range from “less than optimum” to “downright difficult”. Let your bank do what it does best.
8.Avoiding Bank Restrictions 每 Leases do not include blanket liens, restrictive covenants, rate escalator clauses, “call anytime” provisions, compensating balance requirements (a five year 6% loan with a 20% compensating balance requirement actually yields about 15.7%) or any of those other nasty little surprises that tend to be a part of traditional lending arrangements.
9.Simple and Easy 每 LeaseStation leases feature simplified documentation, easy one page applications, no financial statements in most cases, accelerated approval times and more. LeaseStation leases are designed to get you the equipment you need without delay.
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