Leasing Vs. Conventional Lending Models
It has been over a year since the economic climate changed in a dramatic fashion. Relatively speaking, a lot of businesses have struggled; some were bailed out, and others disappeared. The recession has affected all businesses globally in one way or another. Take a look at the way your business is operating today against how it was performing a year ago. How about two years ago? Like a vicious cycle, businesses across our country have been sparring turmoil doing what was necessary to maintain existence. As costs were cut, so were budgets and available capital to make important acquisitions;
Benefits of Leasing:
Today, companies are beginning to see the light at the end of the tunnel, projecting a relatively profitable fourth quarter; a good starting point in the right direction. That leaves them asking, “What’s the next step?” Equipment Leasing remains the fastest growing segment of financial services, catapulting from a 75 million dollar industry in 1989 to the 800 billion (yes billion) dollar industry it is today. So why is it that most business owners reluctantly pursue this option? It is the fear of the unknown. Knowing the benefits of leasing and the manner in which they work will improve your company’s growth and overall profitability. Sure, conventional financing may have worked in the past, but we all know the tools of yesterday are antiquated. You can not remain successful solely using these methods. Leasing provides a corridor for success tomorrow. Having the knowledge is crucial to creating a comfortable position before making an educated decision. Below is a list of some of the prominent benefits of leasing.
• Conserve Cash: With leasing there is no need for large cash outlays as required when purchasing. No more depleting your working capital.
• Preserve Your Existing Lines of Credit: Your present sources of short-term borrowing power are unaffected by leasing, keeping your bank credit line open for other areas of your business.
• Gain Important Tax Benefits: Leasing payments can be considered operating expenses and are 100% tax-deductible in most businesses.
• Ease the Decision to Act: A large capital expenditure is heavily contemplated where leasing simplifies this to approving a low monthly expense.
• Improve your Financial Statement: Leasing reduces your long-term debt, keeping costs down.
• Improve Profits and Growth: No more investing in equipment that may become obsolete or worn out. Leasing allows you to use the latest and most updated equipment, maximizing profits now!
Lease vs. Loan in Today’s Economy:
Let’s face it; operating on slim margins is hard enough these days to stick around, forget about trying to expand. Some may argue that now is the time to dig deep and operate in a low risk environment to ensure stability. Others see this time as an opportunity to gain significant market share by investing in the business. So what kind of strategic approach is available to enable your company to fulfill its growth potential without the risk of collapse? Improving your product/service can considerably set you apart from others who share the same market. The issue that business owners face is justifying the risk of investment against the cost of operating. Leasing allows you the ability to acquire the capital you need to make this move without depleting your money on hand. This reduces long term stress or buyers remorse if after the purchase you initially see a downfall. see the associated chart that compares each method of capital acquisition.
What Can Leasing do for My Company Now:
Amidst the first global economic challenge of the 21st century, it is decision time for business owners. Dig deep and wait it out or utilize the tools available to capture a greater market share. Option two seems both intriguing and frightening, but ultimately, it is the only way to succeed. Consumer spending is low, new development is pretty much non-existent, people are losing their jobs left and right, yet health care costs are on the rise. This new plan with the new administration seems to have a savvy answer to the problem, but what happens to those who are standing by while it is implemented?
Leasing equipment this year will allow you to better serve your customers, and perhaps even eliminate a position or two that are being held by employees who would otherwise be insignificant (One way capital acquisition will benefit your business). Here is another thought to mull; How much would productivity and efficiency increase if your office technology was upgraded? Leasing the equipment to enable this output will not only save you money in the long run (through tax write-offs) but increase your profitability. Speaking of tax write-offs, ever hear of Section 179 of the tax code? It allows you to accelerate the depreciation of equipment purchased in the prior year. That means that you can get equipment now, write off the depreciation come February, and pay for it over the next five years.
Decision Time:
Companies that sit back and wait for this recession to end will typically show marginal losses in the years that they are not aggressive (Most justify it to save money in tax payments… Not a smart idea). Take a shot at what will happen when a lender looks at their declining trends based on year-to-year profit and loss? Declined! You and your business do not want to be a part of this group. Instead, go out and lease the equipment you need and write off the depreciation. You may show the same figure in the loss column but when an underwriter looks at this, depreciation is added back into Ordinary Business Income to get a better sense of what your real profitability becomes. Take the aggressive approach in manifesting more business by acquiring capital equipment through leasing and allow yourself the ability to become limitless.
Puzzle Solved.
