In many cases, 100% financing is achievable through an equipment lease. This frees up your available cash for other applications in the business and doesn’t type up equity in assets for long periods of time. An equipment leasing facility is also another source of capital that keeps you from drawing down on your line of credit or using up cash on hand.
Along these same lines, leasing is a great way to match the financing costs of the asset with the depreciation rate, allowing you to pay for the equipment as you use it or use it up versus paying for future use in advance.
100% financing is fairly unique to equipment leasing in the world of business financing, providing the business owner will extremely high access to capital at affordable rates. And when we speak of 100% financing, it can go well beyond the cost of the actual piece of equipment to include such things as delivery costs, service and installation costs, service contracts, and other soft costs not typically covered by a traditional bank loan. 100% financing is also available for used as well as new equipment.
Because the leasing company owns the underlying asset and is strictly focused on equipment leasing in the first place, the leasing application is more streamlined than a conventional lending process that is more generic in design and application. Leasing companies are designed for greater speed to allow for the faster completion of equipment transactions which is demanded by customers and dealers alike.
Equipment leases provide fixed payment amounts over the entire lease term to allow for accurate cash flow planning and management. The goal is to get the payment matched as closely to the real rate of depreciation so that you are only paying for the equipment value that is being consumed.
At time of purchase, you are required to pay all related sales taxes, requiring an even larger outlay of funds, typically not covered by equipment loan financing. With an equipment lease, you pay the sales on each payment, effectively deferring your tax liability well into the future and once again conserving your available cash.
Depending on your business and relative tax position, you can consider different forms of equipment leases that generate different forms of tax deduct-ability of the leasing cost. For example, an operating lease structure would potentially allow 100% of the lease payment to be written off as a business expense whereas the accounting for a capital lease more closely resembles that of an equipment loan.
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