What You Should Know About Equipment Leasing

By: Wade Henderson


The goal of any company is to have positive finances and enough cash to be able to face operative expenses. A combination of the right credit to a medium or long term with the right amount of cash flow is desired. Equipment leasing is a financial measure that increases cash flow when not used as the only source of funding.
Let us now mention some of the benefits of equipment leasing.
Equipment leasing is the perfect choice for those companies that generate high return but are not able to get funding from commercial sources to buy equipment. Equipment leasing companies unlike credit providers will not require self-financing in order to approve your case.
When you use equipment leasing, the payments are registered in the books as expenses and that can be tax deductible. If you worry about the ratios of debt and cash flow, equipment leasing does not affect them because it is not considered a loan.
Equipment leasing is also beneficial for companies that use technology that changes year after year, like the ones working in technology or health. Equipment leasing makes it possible to have high tech equipment without having to go through purchasing processes every year.
Equipment leasing companies are the ones that own the equipment. They make business out of lending it to people in exchange of a fee. The equipment is easier to get and in the requests are processed more efficiently than in banks.
Now let us talk about the negative part:
Equipment leasing is costly, and it is often higher than the cost of a commercial loan. Refinancing your leasing contract with these companies is generally more costly than doing the same with a bank. When the equipment leasing company takes risks, the borrower pays higher prices for the equipment.
The fiscal administration regulates the duration of the leasing contracts and pairs it with the useful life of the piece of equipment being leased. Otherwise, companies would be prone to using accelerated depreciation too much, having short term contracts.
Depreciation does not apply when you are leasing equipment because it is not an asset that you have purchased. Another drawback of this is the fact that you would be able to get tax savings on depreciation.
Back leasing is another feasible option. You can reduce the effect of some of the mentioned drawbacks of equipment leasing when leasing some of your own equipment to a company that is in need of funds.

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