Advantages of leasing

Simplified credit process. An equipment lease is generally easier to obtain than a loan. It's not uncommon for leasing companies to approve transactions up to $100,000 or more on a simple one-page application. If you finance the same items, banks and commercial finance companies require complete financial packages that include yearly statements and tax returns on the business and it's principals.

Speed. Leasing can allow you to respond quickly to new opportunities with minimal documentation and red tape. Many leasing companies approve your application within one or two days and you can have your equipment very quickly

Small initial cash outlay. Unlike most types of loans or financing, equipment leasing usually doesn't require a down payment. Cash required at the beginning of a lease is less than that required for loans.

Flexibility of structure. Lease structures can accommodate many different cash flow requirements. Some of these structures are:

Deferred rentals — payments can be postponed for an initial period to enable the equipment to start generating income before incurring an expense

Seasonal rentals — payments can reduce during business cycles when income is historically low and increase during cycles when income is historically high

Quarterly rentals — four payments per year

Step-up rentals — payments begin low and increase during the term of the lease

Step-down rentals — payments begin high and reduce during the term of the lease

Lower payments than a Loan.

Rental expense. Provided the lease is structured properly, you can deduct the entire payment as an operating expense for tax and financial reporting purposes.

Expanded credit availability. Provided the lease is structured properly, you don't need to list the lease debt as a liability on financial statements. In other words, the lease items won't have a negative impact on financial ratios that lenders use to determine a company's lending limit. This can preserve and possibly increase your company's borrowing ability.

Avoidance of financial restrictions. Many loans or credit line agreements significantly restrict a company's ability to obtain additional financing without the permission of the original lender. Equipment leasing generally has no restrictions on additional or future borrowing.

Maintaining updated office equipment and technology. Leasing agreements with some office equipment suppliers include software and computer upgrades for free or a small charge, so you won't fall behind in technological advances.

Clarity of UCC filings. Many banks and commercial lenders file "all encompassing" UCC statements regarding your assets serving as collateral with the Secretary of State. These public record filings can be very broad and contain language that conveys to the lender "an interest" in all the company's assets. This clause ensures that none of the assets of the company can be sold or used as collateral without the permission of the filing lender. Even though equipment-leasing companies file similar statements, their language is very specific and does not convey "an interest" in anything other than the asset they're leasing.

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