Why You Should Consider Leasing
Under the terms of a true lease, rental payments are ordinary and necessary business expenses. These expenses are also deductible, provided that the lease payments are rent incurred or paid during the taxable year, required for the continued use of the property, for property used in a trade or business of the taxpayer, and for property that the taxpayer has neither title to nor equity in with respect to the payments. Lease contracts can be written to provide the lessee with great flexibility, in terms of the amount and timing of the lease payments.
Below are a dozen typical reasons for leasing.
- Leasing conserves working capital; leasing normally provides 100% financing.
- Leasing avoids use of short-term bank lines and conserves borrowing capacity for financing inventory, accounts receivable, and other short term needs.
- Acquisition may be made through monthly budgetary monies, since operating funds are usually easier to obtain.
- Companies (and people) are budget driven.
- The approval cycle for leasing can be shorter.
- Leasing can provide off balance sheet financing. The equipment will not be listed as a capital item on the company’s balance sheet.
- Leasing protects against an investment in equipment that has declining value. Capital funds may then be used for opportunities that create profit.
- Leasing can provide a way to acquire equipment that was not forecasted.
- Cash flow objectives can be satisfied with leasing.
- Leasing can provide a means of increasing your company’s short-term production capacity.
- Budget justifications become easier with leasing.
- Leasing can be used to ensure survival of your company when your industry is making rapid technological advances.