For the past 40 years, leasing by American businesses has increased; industry research shows that 8 out of 10 companies lease some or all of their equipment. Why do they lease? Because the flexibility provided by leasing allows them to have the most effective operation possible. Companies that lease tend to be the most entrepreneurial and competitive. Here are a few benefits:
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 income statement, equipment does not have to be depreciated over five to seven years. Also, 2008 is the most advantageous year yet for deducting your equipment - see section 179 details.
Lease payments are historically lower than loan payments, thus allowing companies to conserve cash for other purposes. 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.
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. For example, some leases allow you to miss one or more payment without a penalty, an important feature for seasonal businesses.
A lease allows equipment to be returned to the lessor at the end of the lease term. 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.
Balance Sheet Benefits
Because an operating lease is not considered a long-term debt or liability, it does not appear as debt on your balance sheet, thus making you more attractive to traditional lenders when you need them.
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.
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.