The Benefits of Leasing
by Adam Garrett
For merchants that say they are not willing to lease and only want to pay cash for a terminal, take this thought into consideration:
Let’s assume using simple math that the terminal is $1000 to buy or a $100 dollars a month lease for 48 months
If the merchant would lease that terminal and invest that $1000 back into his business here is what would happen: After month one and making one payment, he has an additional $900 that he never would have if he bought it out right. Now let’s assume the merchant invests that $900 back into inventory and runs a 50% cost of goods and it takes them on average 30 days to turn over that $900 worth of product. If he continues to do that every month, at the end of the lease the merchant has generated an additional $21600 in profit ($450 in profit * 48) yet they only paid out $4800 for the lease. So they are $16800 ahead at the end of the lease than by purchasing the terminal outright for $1000.
Its a simple formula to work through with the merchant using their own numbers and to close the deal simply ask them if they are the kind of people that will realistically just spend the extra money on pizza and beer or will they put it back into the business. If they will put it back into the business, leasing makes much greater sense than to purchase.
|Leasing improves cash flow.||Lease payments are historically lower than loan payments, hence conserving cash for other uses. Lessors often pass the tax benefits of ownership on to the lessee in the form of lower monthly payments. Also, by leasing equipment you know the amount and number of lease payments over the life of the leasing period, so you can accurately forecast cash requirements for your equipment.|
|Leasing helps with balance sheet management.||Because an operating lease is not considered a long-term debt or liability, it does not appear as debt on your financial statement, thus making you more attractive to traditional lenders when you need them.|
|Leasing is convenient.||Lessors offer master leases, allowing you to add equipment or upgrade equipment under similar terms.|
|Leasing is flexible.||In addition to master leases, lessors offer other flexible terms. You are able to customize a program to address your needs and requirements – cash flow, budget, transaction structure, cyclical fluctuations, etc. Some leases allow you, for example, to miss one or more payment without a penalty, an important feature for seasonal businesses.|
|Leasing helps manage obsolescence.||A lease allows equipment to be returned to the lessor at the end of the lease terms. You can then upgrade equipment without having to manage disposal and other ownership burdens. Your risk of getting caught with obsolete equipment is lower with leasing.|
|Leasing is popular.||Eight out of 10 companies lease some or all of their equipment, according to industry research.|
|Leasing helps with tax positions.||The IRS does not consider an operating lease to be a purchase, but rather a tax-deductible overhead expense. Therefore, you can deduct the lease payments from your corporate income. Also, because leasing payments are treated as expenses on a company’s balance sheet, equipment does not have to be depreciated over five to seven years.|
|Leasing helps with asset management.||A lease provides the use of equipment for specific periods of time at fixed payments. The lessor assumes and manages the risk of equipment ownership. At the end of the lease, the lessor is responsible for the disposition of the asset.|
|Leasing offers 100 percent financing.||With leasing, there is very little money down – perhaps only the first and last month’s payment are due at the time of the lease. Since a lease does not require a down payment, it is equivalent to 100 percent financing.|