Why Should Businesses Lease Equipment Instead of Buy?

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Why Should Businesses Lease Equipment Instead of Buy?

Before we discuss the benefits of leasing, we should first make sure everyone understands how leasing works.

The Financial Accounting Standards Board (FASB), a private organization charged with developing the rules for public accounting for the United States, defines a lease as “an agreement conveying the right to use property, plant, or equipment (land or depreciable assets or both) usually for a stated period of time.”

When you lease equipment, you’re able to bring new equipment into your business while maintain the flexibility to use your cash flow to grow your business in other areas such as marketing, hiring new employees or inventory. Almost any long-lived asset that you can purchase, you can also lease. Below are some additional benefits of equipment leasing.

Conserve Cash. Rather than pay the entire cost of an asset up front, leasing equipment requires a relatively small monthly payment, perhaps with less than 5% initial capital outlay. For businesses that are short on cash, leasing equipment may be the only way to get needed assets, especially because it’s easier to get a lease than a loan in some cases. Even for businesses that do have the cash to pay for their equipment outright, they may still choose to lease, as it is less detrimental to cash flow.

Tax Advantages. Most equipment leases are structured so the entire payment is a deductible expense immediately. On the other hand, if you purchase the asset, you must capitalize and depreciate the asset, which may mean a slower recovery of your costs.

Access to Special Programs. Equipment Leasing allows you to have special payment plans. With benefits like ‘skip payments’, for the slow season (where you make only 9 payments a year). If you are short on cash flow, we have an alternative program for as low as 1% of the equipment cost to start your lease. Or for equipment that takes a while to generate revenue, a 6 months deferral would be ideal.

Cash Flow Management. By not paying a large sum of money up front for your equipment, you can keep more cash in-house to allocate towards other areas of your business.

Better Rate of Return. If equipment leasing generates positive revenue relative to its payment, then let the equipment to pay for itself.

Please consult your tax professional for additional information on how equipment leasing can benefit your business.

For more info on equipment leasing, please contact Liberty Capital @ 888-702-6008, or visit us on the web www.libertycapitalgroup.com.

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