Leasing 101 - Leasing works for any type of business

Written by Kriss Hammond


Leasing 101 Leasing works for any type of business.

Leasing defined

A lease is a contractual arrangement in which a leasing company (lessor) gives a customer (lessee)repparttar right to use its equipment for a specified length of time (lease term) and specified payment (usually monthly). Depending onrepparttar 137830 lease structure, atrepparttar 137831 end ofrepparttar 137832 lease termrepparttar 137833 customer can purchase, return, or continue to leaserepparttar 137834 equipment. Leasing works for any type of business. Every imaginable type of organization leases throughoutrepparttar 137835 world including proprietorships, partnerships, corporations, and government agencies, religious and non-profit organizations. Over 80% of American businesses lease at least one of their equipment acquisitions and nearly 90% say they would choose to lease again.

Almost limitless possibilities

Your Company can lease anything associated withrepparttar 137836 operations of your business including all types of capital equipment, hardware, software, and soft costs such as installation and consultation. Leases for large equipment such as container ships and passenger or cargo aircraft can also be arranged by professional companies such as Loanmarketeer or Ecapitalservices. Other than leasing military equipment to small countries with tin – pot dictators who happen to have delusions of grandeur, leasing is possible in all business equipment situations.

Leasing preserves vital credit and capital.

Leasing your equipment versus purchasing through a conventional bank loan makes better use of your money. Most business owners have wrongly been conditioned to believe that through purchasing equipment out right they are saving interest and finance charges.

Is a bank loan cheaper than leasing?

Banks charge lower interest rates than leasing companies, don’t they? Well, not exactly. That’s because rate per se,repparttar 137837 cost per thousand dollars of equipment per month orrepparttar 137838 "interest rate" that is being factored intorepparttar 137839 transaction, is an unimportant consideration. Far more important arerepparttar 137840 terms and conditions ofrepparttar 137841 transaction. The terms of your "low rate" bank loan usually require that you keep some money, perhaps 20% to 30% ofrepparttar 137842 loan amount in a non-interest bearing account at that bank as "compensating balances" (sorepparttar 137843 bank is really lending you 70 cents of their money and 30 cents of your own money for each loan dollar). When you computerepparttar 137844 real yield on that, you find that a five year 8% loan with a 30% compensating balance requirement is really about a 24% loan (because you’re paying interest on 100%, but only getting 70%). Usingrepparttar 137845 same formula, a 20% compensating balance requirement makes their yield on that 8% loan almost 18% and with a mere 10% compensating balance, it's still about 12.5%.

So you have this “low” bank rate, but you have to leave part ofrepparttar 137846 money inrepparttar 137847 bank. You also have covenants that require you to maintain certain financial ratios,repparttar 137848 bank have filed a blanket lien against your assets and you are cross collateralized with your personal accounts, your kids’ trust accounts and everything else. There is probably a clause inrepparttar 137849 loan agreement that says that if at any timerepparttar 137850 bank feels uncomfortable with your industry they can callrepparttar 137851 loan even if you have made every payment on time, and another that says they can increase their rate if their cost of money goes up. Oh, and they probably didn't want to financerepparttar 137852 entire cost, preferring that you made a down payment. In short, there are terms and conditions that you probably didn't know about and a rate effectively higher than you imagined. So it is pretty clear thatrepparttar 137853 “rate” is notrepparttar 137854 only factor in making a decision on how to finance equipment. You have to look a lot deeper.

Another factor militating against bank financing and conventional ownership is that new technology is obsolescing everything that was “new technology” before, and that is something that is going to continue to happen inrepparttar 137855 future... only faster. So, given that most equipment is going to be worth very little very soon, conventional financing becomes even less desirable.

It isrepparttar 137856 use of equipment which generates profit, notrepparttar 137857 ownership.

Cost Analyses

Here is a quick and easy way to estimate what a piece of equipment can actually cost using leasing and after tax costs. Since qualifying leases can be expensed directly,repparttar 137858 tax benefits are available sooner. Here is an example: 1. Determinerepparttar 137859 equipment cost $89,900.00 2. Monthly Lease Payment (60 month lease*) $1977.00 3. Tax deduction (We’ll use 40% of gross**) $790.80 4. Deduct line 3 from line 2 to getrepparttar 137860 net cost per month $1186.20 Now let's translate this into operating figures: 5. Divide by 22 business days*** to getrepparttar 137861 net cost per day $53.92 Divide by 8 hours**** to getrepparttar 137862 net cost per hour $6.74 Thus a $90,000 piece of equipment can really cost less than $7 an hour

NOW TRY THIS WITH YOUR SITUATION: 1. Equipment Cost $______ 2. Monthly Payment (line 1 x .0235) $______ 3. Tax Deduction ( ___ % of line 2) $______ 4. Net Monthly Cost (line 2 less line 3) $______ 5. Net Daily Cost (line 4 ÷ by ___ days) $______ 6. Net Hourly Cost (line 5 ÷ by ___ hrs) $______ *Illustration only. Actual rate may vary. ** Federal plus state usually around 40%. *** Avg. # of business days/month at five days per week. **** Select hours of operation per day.

Engineer-to-Order ERP Now to Include Configurator

Written by Roger Meloy


Encompix ETO ERP software leader based in Cincinnati, OH, announcedrepparttar inclusion ofrepparttar 137811 proprietary ETO Configurator as part ofrepparttar 137812 company’s product suite. The ETO Configurator is based on Configure One’s concept product and is specifically design for engineer-to-order manufacturers.

Unlike most project configurators that can handle only simple configuration challenges,repparttar 137813 ETO Configurator can handlerepparttar 137814 very complex product rules normally associated with engineer-to-order, project-based, or custom manufacturers.

Roger Meloy, Marketing Director with Encompix, note, “The ETO Configurator dramatically reducesrepparttar 137815 time it takes to go from a customer’s initial request for a quote to whenrepparttar 137816 product is actually shipped by streamlining and automating much ofrepparttar 137817 pre-manufacturing process. This includesrepparttar 137818 creation of quotes, sales and production drawings, routings, and bill of material (BOM.) The data is seamlessly integrated with other Encompix components and is used to create a routing and a complete indented BOM in Emcompix.”

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