Leasing Explained Leasing consists on hiring an asset which remains the property of the lender but can be used by the borrower. The contract lasts for a certain time at the end of which the borrower has the option to buy the asset by paying a lump sum (usually a small percentage of the assets value). If he chooses not to do so, the contract ends or it can be renewed by replacing the leased asset with a new one. Its widely used for cars and business equipment. Benefits of Leasing Equipment Leasing equipment has many benefits; it combines the advantages of renting equipment with those of possession by means of loan financing. Furthermore, the main advantage leasing provides is flexibility. Due to its mixed nature, most terms are subject to negotiation. No Money Down When buying equipment you need either to put money down or request a loan in order to purchase the equipment. When you lease, you pay monthly installments and get immediate tenure. Its just like if you were renting the equipment only youll be able to acquire it if you want to at a later occasion. Tax Benefits When you purchase equipment, it adds up to your taxable assets. If you requested a loan in order to pay for it, you can deduct the costs, but the equipment remains your property. When Leasing, you only hold possession of the equipment, it remains property of the lender and thus, you can deduct the monthly payments and it wont add up to your taxable assets. Flexibility If the equipment becomes obsolete, you can always request it to be replaced with a new one. Thus, you wont suffer the consequences of obsolescence. You can have up to date equipment just by paying a monthly fee for it. Once you have no more use of it, disposing of it becomes the lenders problem and not yours. Given all the technological changes that occur everyday, chances are that you will make an excellent use of this leasing characteristic. When it comes to starting businesses and businesses in the technological field or technology dependent, leasing is definitely the best financial alternative. Fast Approval Since the asset remains property of the lender, leasing doesnt have many requirements. The contract usually includes insurance policies attached to it so the lender gets rid of certain risks related to the equipment and concentrates on its concern (financing). Nevertheless a good credit history contributes a lot to getting a good deal on a leasing transaction. Bad Credit can increase the costs of leasing operations and since leasing is not the cheapest financial option, if you have really bad credit, it might be wise to consider other alternatives first. |
