Benefits of Equipment Leasing
That is a question have been asked many times over the last 30 years. Most leasing companies will simply list the features of equipment leasing, but many forget the actual benefits of equipment leasing. Many will have phrases similar to ” aids forward budgeting” or ” tax efficient”.
If you are an FD of a company, that will be fine, but I would suggest that most will be normal people, looking for a ” Janet & John” explanation. This is Oak’s ” Janet & John” version of what are the benefits of equipment leasing.
Benefits of equipment leasing for your business are ………
Gives you a rainy day fund……
One of the key benefits of equipment leasing is that it will preserve your cash in your company. Every company needs what we call a rainy day” fund, to cover the unexpected bills that suddenly crop up from nowhere.
This helps smooth out the bumps in a companies every day to day cash flow, if this is used to buy equipment, the bumps ahead will have to be smaller. These bumps just come out of the woodwork, and are totally unexpected.
You know the sort of thing, a van engine suddenly needs replacing, the printer goes AWOL, the lathe needs a repair. We cannot stress hard enough that cash flow is crucial to any business, and a cash rainy day fund simply gives you flexibility to cover these unexpected day to day expenses that all businesses have seen.
Remember the key phrase in any business,…. Cash is King
Avoids the bank manager…..
As far as we know, very few people actually enjoy speaking to your bank manger. Is it the thought of a rejection that makes us worried? Will he ask for extra security to cover the loan or overdraft before he might consider? Will he ask for updated management and budget figures?
All these questions! The terms that banks offer loans are a major obstacle to companies looking for finance from their banks. Remember, overdrafts can be withdrawn normally on 28 days notice!! Can there be a greater benefit of equipment leasing than avoiding the bank manager, I don’t think so!
When you ask the bank manger if you can include installation, transport, etc, you will hear the phrase that is very well known, ” computer says No”. With Oak, we say YES! If you are a new start business looking for a loan, well you can guess what the answer will be!
The key is to keep you bank credit line free for the normal day to day running of your company. The bumps ahead might be larger than your rainy day fund! It just makes sense to always have a safety net at hand
Oak’s fixed term equipment leasing will run for the period of the lease, as long as you make the normal and agreed repayments every month, there is no 28 days hanging over your head. You can plan your future with the confidence of a fixed monthly repayment and a fixed term, and rates are that are still at historic lows.
Christmas Eve syndrome…..
That special Christmas Eve feeling when you really want the presents, but have to wait. Leasing enables you to have the new equipment when you need it now, you don’t have to wait weeks or months.
There is no large capital cost, so you can afford better and more efficient equipment, just an affordable monthly repayment. Remember the “rainy day fund”, it saves you cash and your overdraft for the day to day running of your business.
Everyone’s reason is different…..
If you ask people to pick the best England team over the last say 40 years, everybody will have a different team, just think, who would be your striker, Hurst, Shearer, Lineker, Rooney, Kane? It is exactly the same with leasing equipment. If you asked companies that use leasing, they will come up with varied reasons.
Might be cash flow, money was a bit tight, might be a rainy-day fund, they might require their cash to fund other things, even rare things like a holiday! New starts need to save their cash, established companies might say, it is the tax benefits. It simply is up to you, but remember no one pays their staff 3 years in advance. Therefore, let the equipment work for you and generate the profit by spreading the cost, it really is a no brainer!
You choose whatever equipment you need…..
Banks are quite particular when it comes to lending, if it is painted yellow, or has a wheel at each corner, they will normally say yes. If you tell the bank it is funding for a commercial kitchen with air conditioning.
When you add that ducting and installation costs are involved, you will hear a sharp intake of breath! Equipment leasing gives you the total flexibility of choice of equipment, and flexibility to add additional equipment onto your lease agreement.
As you are not outlaying a capital sum, but a monthly repayment, this normally helps in in acquiring perhaps better or more efficient equipment that you would have been able to afford with a cash purchase.
In fact if you look at what we have leased over the years, you can see that it can be used for almost any piece of equipment that you can think off, from plant, machinery, furniture, air conditioning shoplifting, North Sea equipment, football pitches, renewables, and best of all gin stills!!
Overplaying the tax side?…..
We do not over- egg things, many leasing companies will proudly show you potential tax savings by leasing equipment as a cast iron certainty, the key word here is potential. Remember in all of these is that you have to be making taxable profits to gain the tax benefits.
Look upon this as a probable benefit , not a cast iron one in your cash flows. Very few start up companies will be making large taxable profits in year one! If you do, well congratulations! Established companies making taxable profits are normally fully aware and utilise the tax benefits to their advantage.
You can always have suitable equipment…..
Leasing will give the the opportunity to “upgrade” your equipment during the term of the lease. Especially with IT equipment, you can change the equipment during the lease term. You are no longer not stuck with old, and unsuitable equipment for your growing company. This just adds to the junk cupboard.
But if I pay cash, it is mine!…..
That is true, but if you really think about it, do you need to actually own the equipment. If you look around you, how much old equipment is still in storage in your company. Probably you have old computers, fax machines, obsolete machinery or other equipment that you will never use again. Just clutter. If you really need to own equipment, finance is a very good option, and you have spread the cost.
With finance options, HP, where the title fee at the end is normally around £150. With leasing, often no more than one more monthly repayment, it is hardly a kings ransom! You could say, that is having your cake and eating it as well!
So there you have it!
Oak’s ” Janet & John’s” what are the benefits of equipment leasing, in I hope “jargon free ” language. You now know why businesses choose equipment leasing, and we hope this answers your question, what are the benefits of equipment leasing?
Oak is transparent, impartial and experienced, coupled with thousands of happy customers, millions funded.
