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    February-2013  


In Hard Times, Small Businesses Need To Look At Leasing Equipment

There is a saying that cash is king and conserving cash is the best way of saving a company in hard times.

To this end, small business owners should consider equipment leasing as a viable option even if the total costs for a  new asset is eventually higher than purchasing outright.

Equipment leasing is a strategic financial option for businesses to consider regardless of the economic climate.

But given the current environment, for many businesses leasing may be the most a viable option for acquiring equipment, so it’s important that company owners know the ins and outs so they can negotiate what’s best for their organization, a leasing-industry leader says.

William G. Sutton, president and chief executive officer of the Equipment Leasing and Finance Association, says owners need to ask the right questions in order to secure the best possible leasing terms, or to help them decide that leasing is not the way to go.

Owners must first decide how, and how long, the equipment will be used. To help decide whether leasing is a profitable financing option, says Sutton, perform a cost/benefit analysis that compares the periodic leasing payment to the revenue the company expects to generate from using the equipment.

It’s also important to work with an equipment-finance firm that understands the company.

“For one, leases can vary, and lease customization that takes into account individual company needs and requirements such as cash flow, budget, transaction structure and cyclical fluctuations is a key reason that businesses lease,” Sutton says.   

For example, seasonal businesses would require lease terms with the flexibility to miss one or more payments without a penalty during their low season.

Business owners should know exactly how many payments are due, how insurance and taxes are paid, and whether late-payment fees or other surcharges are associated with the lease. In addition, early termination of a lease can result in additional payments or charges.

Sutton says owners should understand before they sign a lease what their liability would be if the equipment is damaged or destroyed, along with other potential obligations, such as installation and maintenance.

Upgrading or adding additional equipment should also be a consideration of business owners. Sutton says a master lease would be beneficial to any owner who anticipates growth in the future.  A master lease is a contract that permits the leasing of certain assets and also enables the acquisition of additional assets under the same basic terms and conditions without negotiating a new contract.    

At the end of the lease, business owners typically have three options, Sutton says:  return the equipment; purchase the equipment at fair market value or a nominal fixed price; or renew the lease. If the business chooses to purchase, ask when it will receive the title.

If the equipment will not be picked up, business owners should know what documentation and packaging materials are required for its return. Who will pay for shipping or delivery and when the equipment must arrive at the equipment-finance company after the lease ends are among other considerations.

The more questions one asks, Sutton says, the more information one will have in order to make an informed decision about lease financing.

For more information about equipment leasing and finance, visit www.EquipmentFinance101.org. For more information about the Equipment Leasing and Finance Association, visit www.ELFAOnline.org.


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