Advantages of LeasingAdvantages of Leasing
- Flexibility and convenience are two of the advantages most frequently cited about leasing. As a business grows and your needs change, leasing allows you to add or upgrade equipment at any point during the lease term through add on or master leases. With leasing, you can customize a program to address your needs and requirements regarding cash flow, budget, transaction structure and cyclical fluctuations. It also offers options including installation, maintenance and many other services.
Use of Equiptment- Advantages of Leasing
Understanding that with leasing, you pay only for the time you use the equipment, rather than the entire value of the equipment. At the end of the lease term, the worth of the equipment is called its residual. This residual value is built into the lease pricing so that monthly lease payments are usually less than monthly loan payments.
This advantage improves cash flow. Another reason leasing improves cash flow is because it does not require a down payment or additional collateral, so it is equivalent to 100 percent financing. These benefits allow you to direct more dollars into revenue-generating activities.
Transfer the Risk of Obsolescence
An additional advantage of leasing is the ability to transfer the risk of obsolescence and being left with out dated equipment to the leasing company since the equipment can be returned at the end of the lease term.
It’s useful to know how to apply the advantages to your business situation. First determine how and for how long you plan to use the piece of equipment. The amount of flexibility your business requires will help you make the decision whether leasing or owning makes more sense. For instance, if you expect a sudden growth spurt, leasing can readily accommodate your needs.
Once you have evaluated how the equipment is to be used, you can determine the appropriate level of investment for a lease. Doing a simple cost/benefit analysis that compares the periodic leasing payment to the revenue you expect to generate from using the equipment will help you determine this.
Advantages of Leasing - Relationships
Establishing a relationship with a leasing company is a component in the success of your leasing. Working with a leasing company that understands your particular industry will provide you with customized options that consider your business’s needs and requirements. Your leasing company should be knowledgable to your areas of focus, including cash flow, budget, tax and many other considerations.
Your leasing company can be a valuable ally in your asset management efforts. Equipment disposal and remarketing, for instance, is a full-time job in itself, and is better left to your leasing company for whom the function is a core competency.
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