Equipment Leasing and Commercial Financing

Cash & Loans:

  • Buying with Cash immediately affects cash reserves. Loans also require significant down payments
  • Liquid Assets are depleted and credit is affected
  • Owners must asset-liability on their books. You must have equipment appear as an asset with a corresponding liability on the balance sheet
  • Additional Costs such as installation, training, software, and materials will come out of pocket

Leasing:

  • No Down Payment Required. Leasing has less impact on cash flow because of low monthly payments
  • Does not affect your line of credit
  • Operating lease assets are expensed. Such assets do not appear on the balance sheet, which can help improve your financial outlook
  • Additional Costs like maintenance, installation, and training can be included in the lease

Benefits of Leasing:

  • 100% Financing - Leasing covers 100% of the equipment cost with room to add soft costs including, installation, and maintenance
  • No Down Payment - A security deposit equal to two months rental payments is usually all that is required
  • Flexibility - Customize a lease to fit your particular situation with special programs like deferred payments or seasonal payments
  • Use Inflation to Your Advantage - If you pay cash for equipment, you pay with today's dollars at today's value. Through leasing, you pay with next years inflated dollars, and the next and so on
  • Preserve Bank Credit Lines - Leasing doesn't affect your bank borrowing limits. You still have 100% of your credit available
  • Avoid having Obsolete Equipment - Upgrading your lease is easy, you can upgrade to new modern equipment
  • Conserve Working Capital - Keep your cash flow free; don't tie up cash... keep it free for incoming producing investments
  • Leases May have Accounting Benefits - Monthly payments may be deductible as operating expenses rather than accounting for the equipment as an asset

Tax Savings

  • Possible Tax Savings* - If a company is in the 34% tax bracket and has a lease with a monthly payment of $500 the payment may be reduced to $300 - that's a monthly savings of $170 or $2,040 annually
  • Increase Your Profits Immediately - With leasing, you only need to cover the monthly payment for new equipment to be profitable from the first month! Example of cost-effectiveness of a lease: A monthly payment of $500 divided by 30 days = $16.67! Divide that by 8 workday hours and you get an hourly cost of $2.36

Types of Leases

$1.00 Buyout or Lease to Own: This non-tax lease allows the customer to own the equipment for $1.00 at the end of the lease. This lease will have the highest monthly payment. The following options are available at the end of the lease;

  • Purchase the equipment for $1.00
  • Upgrade the lease - This is a good option for equipment with a long useful life. Also called a Capital Lease and may be depreciated on the balance sheet

10% Purchase Upon Termination: Under this non-tax lease, the customer must purchase the equipment at the end of the lease at 10% of the original equipment cost. These options are at the end of the lease:

  • Purchase for 10% of the original cost
  • Upgrade or renew a lease. This also is known as a Capital Lease and may be depreciated on the balance sheet

Fair Market Value (FMV): This lease provides the lowest monthly payment and has three options at the end of the lease:

  • Purchase the equipment for the fair market value
  • Return the equipment
  • Upgrade or renew a lease. This is a good option for companies that upgrade to new equipment every couple of years. Also known as a Tax ' True Lease because it qualifies as a tax-deductible business expense

For more information call Danny Stewart 714-985-6214, or email at Danny.Stewart@providencecapitalfunding.com

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