Leasing:
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What is Leasing?
Leasing is a financing method that enables a company to rent an asset (such as equipment, vehicles, or real estate) over a defined period, with the possibility of becoming the owner at the end of the contract by paying an option to purchase. This solution is often used to finance expensive equipment without having to tie up large amounts of capital.
The main features of leasing are:
- Long-term rental: The company uses the asset while making regular rental payments over the term of the contract.
- Purchase option: At the end of the contract, the company can choose to exercise the purchase option to acquire the asset by paying a pre-defined sum.
- Tax advantages: Rental payments may be tax-deductible as operating expenses.
- No capital investment: Consult with your accountant for specifics.
- Access to modern equipment: The company can use modern equipment without having to buy it immediately.
This is a particularly attractive solution for companies that want to preserve their cash flow while accessing high-performance equipment.
Types of Leasing
- Capital Lease: The term covers the useful life of the equipment. At the time of final payment, the lessee may extend the lease or purchase it for a predetermined amount.
- Operating Lease (also known as Fair Market Value Lease): Similar to a lease, with a term normally limited to 75% of the equipment’s useful life. Upon final payment, the lessee can either transfer the equipment or purchase it at “fair market value.”
- Terminal Lease Adjustment Clause (TRAC): At the end of the leasing contract, your company has the option of leasing the equipment again, selling it, or buying it for a predetermined amount.
Competitive Advantages
One of the greatest advantages of leasing is the low capital outlay involved in acquiring equipment. Leasing often requires little or no down payment, and there is no advance sales tax payment.
Obtaining a leasing contract usually involves a quick and simple credit application process.
When you’re looking to purchase equipment and wondering whether to lease or buy, consider the following facts about leasing:
Why Lease?
Leasing allows you to generate income from the use of equipment without the burden of ownership.
Key Benefits of Leasing:
As an alternative to traditional financing, leasing offers substantial benefits for businesses, including:
Financing up to 100% of the equipment value
Other financing options may require a substantial down payment. Leasing often eliminates the need for a down payment.
Preserve working capital
Lease payments can be matched to your cash flow, keeping your liquidity available for other critical needs.
Preserve bank operating lines
Leases are often off-balance sheet, meaning they do not impact your leverage ratios and preserve your borrowing capacity.
No prepayment of taxes
Sales taxes are included in your monthly rent payments.
Tax advantages
Depending on the leasing contract structure, you may be able to deduct monthly rental costs as operating expenses, reducing the overall cost of the lease. Consult with your accountant for tailored advice.
Technological innovation
Stay ahead with the latest technology. Leasing allows you to adjust the financing term to the equipment’s useful life, helping you keep up with technological advancements.
Affordable lease payments
Leasing is a popular choice for many companies as it allows them to obtain necessary equipment while maintaining their operating budget.
Purchase or renewal options
Leasing contracts offer the option to acquire equipment at a predetermined amount or fair market value after the term. You can also renew the lease for an additional term, often at reduced monthly payments.
Flexibility
Leasing provides more flexibility than traditional financing. Payments can be adjusted to match your company’s cash flow. Options like seasonal payments and payment extensions are available.
Apare Services
Industries
We assist companies in the following sectors:
Construction
Transportation
Excavation
Agriculture
Forestry
Industrial
Office and Technology
Dental and Medical
Supply Chain, Material Handling, Printing, Automotive Repair
Is your industry not on the list?
Chances are that we can help.