Alternative Financing

In today's economy it makes sense to explore all available options to improve your company's cash flow. Leasing is a common, cost-effective means of acquiring equipment and upgrading your technology.

A lease is a financing agreement that can be structured in a variety of ways to best meet your organization's needs. When evaluating whether leasing makes sense for a particular purchase, you should consider three things: the most efficient method of payment, the length of time you will use the equipment, and your future technology needs. Many businesses prefer leasing as a way to spread payments over the exact life of the equipment purchased.

A lease is not a loan, and therefore costs for leases are figured differently from those of loans. Some differences between the two:

  • Leases do not require a large down payment.
  • Leases only finance the value of the equipment depleted during the lease term, with an option to purchase at the lease's end.
  • Leases require no other collateral besides the leased equipment.
  • The leasing company absorbs any risk of premature obsolescence since the lessee can simply choose to not buy the equipment at the lease's end.
  • With operating leases, the entire lease payment can usually be claimed as a tax deduction, rather than just interest and depreciation (check with your tax professional for your situation). Lease payments may also be shorter than the IRS depreciation schedules, allowing faster expensing of the equipment.
  • A lease is generally not considered a long term liability, improving your balance sheet.

A company planning for a three year life span for computer hardware and software can therefore choose a three year lease term, providing a fixed monthly expense while retaining capital for day-to-day expenses. If the company expects to sell the equipment at the end of the three years, the lease only covers a portion of the original expense,
providing further savings.

Although many leases are of the "lease to own" variety it is possible to structure a lease that finances a only a portion of the cost. A fair market value lease allows a company to decide down the road to purchase the equipment with a one-time payment, or turn the equipment over to the leasing company. This type of lease provides for smaller monthly payments for the duration of the lease, freeing working capital.

Some leasing companies will even allow leasing for labor costs for installation, training, and maintenance, as well as for software, allowing companies to further defer total payment for a project. At least one will work with ITS and our vendors to help reduce or avoid down payments for larger orders. Leasing is available for projects costing as little as $1,000.

ITS will work with clients to find a leasing company. Approval is very quick compared to loan or credit line approvals, typically providing approval within 24-48 hours. And there is generally no application fee. With little down side, leasing is certainly worth exploring.

May 2002

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