To achieve its investment, the company seeks a balance between cash and credit medium or long term. It can also choose to lease. Equipment leasing is very flexible in its use and constitutes a financing measure when in synergy with other sources 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.
Another advantage of equipment leasing is the fact that its payment is tax deductible. Additionally it will not alter the relationship between debt and cash flow because it is included as an expense and not the same way a loan would be.
Equipment leasing is a great idea for companies whose operations require the use of rapidly changing technology. Through leasing, the company can change strategies accordingly and easily acquire state of the art equipment.
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.
Some of the disadvantages of equipment leasing are:
The main drawback is the fact that it is more expensive than buying the equipment through a loan. However it is a choice for those who cannot afford a loan. Refinancing is also more costly and the customer will pay a higher price because of the leasing fees.
Because of fiscal restrictions, leasing contracts must be valid for a period similar of the useful cycle of the equipment being leased. This is done so that companies will not abuse from accelerated depreciation and have contract that are too short.
Given that the company does not owner the equipment, the company cannot use depreciation. Tax savings by deducting total rents for a consideration the fact that the company cannot benefit from the tax savings for the depreciation.
The existence of the back-leasing is worth mentioning. This practice focuses on property already owned by the company and therefore are assigned to the leasing company to raise funds.
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