Cash Purchase vs. Lease Finance?
Should an asset manager deplete Company Bank Accounts to purchase Capital Equipment or finance the acquisition with an Equipment Lease? A recent article in WSJ debates this very question.
While this particular critique discusses the benefits of a manufacturer or retail store leasing their real estate or premises where they conduct business, the principle would also apply to companies who need to replace or upgrade capital equipment. The result in both cases is the preservation or replenishment of needed capital to run the business.
The Author cites rising interest rates and a lack of credit availability as the primary reasons that companies prefer a lease finance option over using their line of credit or raising new capital. However, there are additional advantages to financing equipment with a lease program:
- Convenience: A lease is a convenient source of added capital to enable growing companies to quickly and easily replace equipment or to expand.
- Easy Budgeting: Leasing allows easier budgeting, and many firms can fiscally function more effectively when they have a fixed monthly payment.
- Preservation of Credit Lines: Leasing allows customers to maintain existing credit lines with suppliers and banks. Cash purchases not only deplete cash reserves that business may need for operations; it can have a negative impact on the balance sheet.
- Tax Advantages: Leasing may create tax advantages and address equipment obsolescence. If properly structured, the lessee can expense the payments over a shorter term than a cash purchase. Usually, this term will coincide with the useful life of the equipment. These advantages should be reviewed and confirmed by your accountant.
Generally, a business can lease equipment more easily than traditional bank financing. Many companies also find it no longer makes sense to invest capital in assets that depreciate quickly in value.
A lease finance program gives the Lessee the ultimate in choices and flexibility. Management and Purchasing Professionals are poised to take advantage of whatever option allows them to stay efficient, compliant and competitive.
Let us know if we may be of service; it’s the “lease” we can do,
Kevin F. Clune, CLFP
kclune@clune.net
Clune & Company, A Division of
Landmark Financial Corporation
