"If it can be manufactured, it can be leased." For past decade or so, this statement has become more and more true to fact. From computer software to commercial aircraft, equipment leases are utilized day in and day out in a constantly changing and highly aggressive business environment worldwide. To gain or to keep edge over their competitors, companies of every type and size are constantly looking for creative ways to conserve working capital while expanding operations. Many have turned to leasing their equipment to help in effort. For this reason, leasing industry is being defined as a major player in equipment financing today.
So, why should you join these businesses in choosing to lease? Well, one key factor is that commencement of a lease can be done with very little out of pocket expense. Two advanced payments or an equal security deposit is usually all that's required. Couple this with fact that for many leases, particularly those under $75,000, a simple one page credit application is all that is needed to be considered for approval. Compare this against an equipment loan, with it's more extensive paperwork and resulting 10 to 50 percent down payment required to begin transaction.
Leasing will also allow your business to maintain credit lines with banks. This preserves company's borrowing power for future expansion, investing, or other types of growth where leases cannot satisfy need.
Many business owners don't like idea of paying a premium rate in order to both own and use equipment. If obsolescence is an issue, such as in hi-tech sector, most companies find it more desirable to be able to walk away from outdated equipment having completed a short term lease. The average term runs anywhere from 2 to 5 years, after which business can begin another lease and acquire more, up-to-date equipment. This progression can give your company a vital edge over it's competitors. Other leasing benefits could be expounded upon, such as tax advantages, lower monthly payments, fixed expenses and off-setting of inflation, but you can see point.
Now, simply realizing that leasing is beneficial for your business and then pursuing it as a course of action is only start. Like bank loans, there are elements of a lease request that increase chances of funding. That may seem like a no-brainer, but many business owners expect more leniency from lessors than any lending institution is able to provide. Leasing companies, like your business, are in process to make money. Therefore, some consideration on your part is in order. You should try to give lessor at least a 70 percent chance of funding your request. Below are most crucial points of review:
Your Time in Business - Since about 90 percent of all businesses fail in first three years, most lessors will require of lessee a minimum of two years in business. In addition, there is generally a maximum transaction amount of $10,000 to $15,000 for businesses under three years old. However, some lessors, in order to compete in their market, have relaxed those requirements or developed special programs for startups and young companies. These types of programs will obviously demand higher lease rates, but ability for a new business to obtain necessary equipment fairly quickly and with a minimum of paperwork still makes process very worthwhile.