As the year comes to a close, many companies are evaluating their 2015 performance and looking ahead toward 2016. A goal for many businesses is to maintain a healthy balance sheet while still making growth-oriented investments, and one increasingly popular option is through leasing.
Leasing allows companies to preserve working capital while also making sure equipment remains up to date in a competitive world in which technological upgrades come fast and furious.
I recently spoke with Jefferson Peters, KeyBank’s equipment finance officer for Oregon and Southwest Washington, about the benefits of leasing.
While leasing once was a strategy used primarily by large corporations, small and mid-sized companies have begun taking advantage of the myriad financial benefits. One reason is that almost any type of equipment can be leased – from computers and servers, to manufacturing automation systems, to medical equipment and more. Software, services and support can also be financed, giving business owners one predictable monthly payment for equipment and services.
Here are the five primary reasons Peters offered why businesses often choose to lease instead of purchase equipment or services:
1. To conserve cash. Equipment represents one of the most significant capital investments a business makes. By selecting the most strategic financing option and establishing appropriate leverage, businesses free up valuable capital.
2. To stay at the cutting edge of technology. For many businesses to compete and stay ahead of competitors, they need to use the most recent, advanced software and equipment.
3. To gain tax advantages. Some lease payments are fully deductible as an operating expense. Others allow you to take depreciation and interest expense deductions. Leases may also enable businesses to take advantage of tax breaks including Section 179 deduction and bonus depreciation.
4. To stabilize the budget. A lease also provides the use of equipment for specific periods of time at fixed payments. You know the amount and number of payments over the life of the leasing period, allowing you to accurately forecast cash requirements. Lease payment schedules can also be structured to match seasonal cash flow or other budgetary considerations.
5. To take advantage of value-added incentives. A number of leases include service and maintenance as part of the monthly cost.
Flexibility is the guiding principle. Leasing offers solutions to fit almost any business need. More specifically, as your business grows, your needs change. This enables your company to react quickly to new opportunities.
Leasing also allows upward growth to be more easily managed. Companies need to be nimble, and the flexible terms offered by leasing are perfect for a company that needs to quickly respond to opportunities in the market.
The bottom line, Peters says, is that leasing offers strategic, competitive advantages for today’s businesses. When used appropriately, it can provide companies with the flexibility they need to succeed without cutting into their production. As more and more business managers realize that equipment value comes from using the equipment, not necessarily owning it, it becomes much easier to recognize the benefits of leasing, which, in turn, has made leasing an increasingly popular avenue for businesses of any size to finance growth.
This Tip of the Week is written by Jeff Taylor, assistant vice president and relationship manager for business banking in KeyBank’s Vancouver office. He can be reached at 360.449.8059 or at jeff_w_taylor@keybank.com.
