Leasing can benefit your company when you are acquiring machinery or equipment – consider Equipment Leasing Companies rather than a bank.
It helps alleviate some of those repetitive costs.
When your company signs a contract with an Equipment Finance Company which your company is entitled to the use of equipment after paying a fee for a specific period of time. When the contract ends, your company has the option of paying for the equipment, giving it back or sign, or signing a new contract.
Once you’ve completed the term of the contract with Equipment Leasing Companies, the lessee has the option to acquire the asset at a specified price, called residual because its calculation is given by the difference between the original price paid by the landlord (plus interest and expenses) and the amounts paid by the lessee to the Equipment Lease Company. If the lessee does not exercise the option to purchase the property, it should be returned to the company unless the contract is extended.
When it comes to leasing, you have three options:
Financial: it is a contract where the Equipment Finance Companies purchase the property for the lessee to use. The maintenance and repair costs are covered by the customer. Its main advantage is related to taxes, since it allows for accelerated depreciation.
Operational Leasing. Here, the Equipment Leasing Companies pays for both the equipment and the additional maintenance and repairing cost.
The third one is called Lease Back. Here your company will sell the equipment to an Equipment Lease Company which will later lease it back to you in exchange of a fee. However in this option, you have no tax advantages.
What are the costs leasing? The costs come from two sources: depreciation and interest rates. The first one is the most expensive one, and the last on is the cost of having money availability.
One way Equipment Leasing Companies can help your business can reduce the cost of leasing is through Granting. This method allows you to make smaller and more attractive monthly payments for your inventory. You do it by increasing the residual value of a product so much that it is higher than its face value.
The cost of leasing will be the addition of an interest rate plus the depreciation of the equipment, this interest rate is very suitable for companies with little capital, plus the tax advantages your company could have.