With an equipment lease, you get 100% financing so the amount of cash needed up-front is reduced. Even if you have the cash to purchase your equipment it may not always be the best choice. With equipment leasing, cash can be used for other business uses such as expanding sales, new marketing programs, quantity discounts, increasing inventories, opening a new line of business, or simply cash reserves.
A lease preserves bank lines of credit for working capital, seasonal requirements, other appreciating investment opportunities, or emergencies. Equipment leasing is like opening an additional line of credit.
Larger companies often have a need to maintain certain debt-to-equity ratios or comply with debt covenants. Operating leases do not show on the balance sheet as liabilities and the equipment is not counted as an asset thereby keeping the ratios unaffected.
Operating leases are generally treated as fully deductible direct operating expenses, which means a lower taxable income. The True Rental Lease offers a distinct advantage over a Buy-out Option Lease. Your tax professional should be consulted to determine what percentage of other types of leases could be deducted.
With a purchase, sales tax must be paid in full at the time of purchase. With (most types of) equipment leasing sales/use tax is paid over time as the equipment is used (except in Illinois, Maine, New Jersey, and the District of Columbia). This can result in substantial cash savings in the first year of the lease.
With the lower, fixed-rate payments of an equipment lease, you're protected against inflation. With equipment leasing, cash outlays are deferred as compared to an upfront purchase. Inflation will then lessen the cost of future lease payments, since the payments will be made with "cheaper" dollars. You will be making your monthly payments to the leasing company with ever-inflating dollars during the term of the lease. This actually reduces the cost of financing to you in real dollars, which is an advantage that is often overlooked.
Equipment leasing simplifies accounting procedures and eliminates depreciation scheduling. A fixed lease cost ensures consistent control over equipment expenditure.
Equipment leasing with Star*Tel Systems offers you the advantage of Current Technology Assurance Protection, or CTAP. This program offers refresh options after the first year of leasing in order to obtain upgrades to existing equipment, deployment of newer equipment, and additional systems to satisfy your technology needs. You may also opt for extension of term in order to add or upgrade systems while maintaining your current budget; without increasing payments.
Office technology can be a difficult and confusing endeavor. If you have specific questions pertaining to Managed IT and how it can drastically improve your business, we can help.