A lease is a unique financial tool in that the equipment can be depreciated or expensed, offering many tax advantages for different types of businesses. Discuss accounting specifics with your financial advisor. At lease end there is the option to purchase outright, extend the lease, or turn in the equipment and lease something new, avoiding obsolescence. A true lease can provide the lowest payment of any method of equipment acquisition and terms may be longer than debt financing. Payments on an operating lease do not show up on the balance sheet as debt, therefore, not affecting the company’s ability to borrow. This could be just the answer to capital budget problems. Consider these additional leasing benefits:
1. Lower upfront payments.
2. Conserves working capital.
3. Fixed payments and a fixed term simplify budgeting.
4. If your business is measured by “Return on Assets,” leasing will improve your ratio.
5. Leases reduce the debt/equity ratio, enabling your firm to borrow more money.
A lease and a loan are two distinctly different financial agreements. The definition of a lease is “a contract by which one conveys equipment for a specified term and for a specified lease payment.” The leasing company purchases the equipment, holds title and leases it to the lessee for a monthly fee. In place of a finance charge or interest rate there is a lease payment.
A loan is the borrowing of money, wherein the borrower incurs a specific finance charge. The equipment is used as collateral and may not be a deciding factor in the loan’s approval.
For more information see the Canyon Leasing Home Page
