Why Manufacturers Prefer Equipment Leasing
Though many funding routes exist, more and more manufacturers are opting for equipment financing leases rather than outright purchases. Leasing can keep the most up to date equipment available and relieve lessees of ownership and upgrade responsibilities. It can provide a wider range of options that may not have been accessible otherwise while also offering lower monthly payments over longer time spans.
Thorough research can be beneficial prior to completing any applications. Considerations may include monetary plans, interest amounts, supply usage length and life, additional fees and insurance costs. Hard asset leasing can be particularly advantageous for periods covering three years or less, but minimums may apply. Depending on the situation, minimums could potentially be as low as $3,000 or as high as $50,000.
The equipment financing application process begins when the lessor reviews the submitted paperwork. Applications exceeding $100,000 often require detailed proposals and fiscal documentation. Once approved, the agreement structure can be evaluated, finalized, signed and submitted, often along with the initial disbursement. Once the agreement is effectual, funds can be released and supplies dispensed.
Lessors may be independent, captive or leasing companies. The first is generally a direct business third-party provider. The second, also referred to as a broker, serves as a go-between amidst the involved parties. The third usually works with manufacturers.
The two types are capital and operating. Capital leases can last up to six years and permit the typically larger enterprises employing them to claim interest fees and devaluation tax credits. Liability and holdings are heightened because the lease is considered an asset. Operating equipment financing alternatives can last up to three years. This duration is usually less than the average equipment lifespan and permits resale. Though categorized as a rental expenditure and not recorded as capital, this type of lease may still qualify for tax credits.
The decision to lease comes with many advantages. In some cases, payments may qualify for expense deductions and tax credits. Down payment amounts are characteristically small, while monthly expenditures are generally lower since they are spread out over an extended timetable. Because equipment can be returned when the lease finishes, it remains up to date. Some lessors may also extend the offer for lessees to purchase the previously leased equipment. In these cases, appreciation and prior payments are usually taken into account. Ultimately, manufacturers looking for cost-effective options without the burden of outright ownership may find equipment financing to be a good option for their business needs.