Small Business Leasing

Conserve scarce capital - Purchase operational equipment, computers, furniture, vehicles, installation and consultation services without tying up large amounts of capital through flexible leasing programs. Negotiate length and payments based on your business needs and credit history.

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Leasing Basics

Leasing allows a small business (lessee) to secure the use of anything associated with operations, such as all types of capital equipment, hardware, software, and soft costs such as installation and consultation, on a rental basis through a contractual arrangement with a leasing company (lessor).

By renting for a specific amount of time (lease term) at a specific payment amount (usually paid monthly), the business avoids a large purchase cash outlay and keeps existing assets clear for possible other funding sources, such as loans and lines of credit. Ownership of the leased item/service remains in the hands of the leasing company, while the business has the actual use of the leased item. Depending on the term of the lease, the item may be purchased, returned, or upgraded when the lease term expires, or the lease may be renewed.

Who Uses Leasing

Every size and type of business uses leasing including proprietorships, partnerships, corporations, government agencies, religious groups and non-profit organizations. Sample industries where the practice of leasing is highly beneficial include:

Leasing statistics suggest that...

Why Leasing

Leasing offers a small business a range of benefits:

• Typically requires less upfront money than conventional financing with less restrictions
• All related costs may often be included in the lease, such as shipping, installation, service and maintenance
• Payments may qualify as operating expenses providing additional tax advantages
• Some leases allow you to deduct the complete cost of the lease in the first year, creating additional operating income to help the business grow
• Processing is often faster than other forms of financing
• Flexible length and payment levels
• Avoid owning obsolete equipment and support improved productivity leasing current products, services and technologies
• Collaborative, interactive role of a good leasing agent helps to expedite procurement and delivery of time-critical equipment and services - more peace of mind
• Offering leasing as a purchase option to customers may support increased sales

Choosing A Lessor

Choosing the right Leasing Partner is perhaps the single most important step to leasing. Look for a lessor with:

1. Experience and knowledge
2. Ability and willingness to keep you informed
3. A good reputation
4. The ability to perform
5. Helpful business contacts
6. A solid relationship approach

Choosing A Lease

All Lessors are not the same, nor are leases. When planning for lease financing, the first step is to identify the top three or four attributes that are important to you. For example:

• Lease Pricing
• Pricing is market driven and based on your credit history
• Secure/compare more than one bid
• Identify and understand all potential fees
• Lease Flexibility
• Payment options; step-up, step-down or seasonal payments
• End-of-lease options; e.g., notice period (1-6 months), option to relocate equipment, early termination options/costs, terms for assigning lease to someone else
• Balance Sheet Consideration
• Discounted cash flows
• Applicable lease fees
• Tax ramifications
• Equipment/Service Obsolescence
• Match lease term with projected equipment use
• Negotiate end-of-lease terms; e.g.,
• Bargain Purchase Option: Attractive when knowing in advance that your business will be keeping the leased item beyond the term.
• Fair Market Value (FMV) Option: Attractive if it is unlikely that your business will keep the leased item beyond the term and/or when the item is prone to obsolescence as lease payments can be lower. Allows continued lease beyond term or purchase at "fair market value," which is generally quoted by the lessor. Appraisals can be obtained for comparison and value "caps" can be agreed to, as well as minimum value "floors."
• Anticipated period of Equipment/Service Usage
• Six months is a minimum time frame for leasing

When to Lease

There are specific factors that make leasing a smart business choice over purchasing or other forms of financing, such as:

• Flexibility - Your business can decide what it wants to use, when and for how long.
• Convenience - You can decide to keep the leased item or not at the end of the lease term
• Cash Management Control - Leasing doesn't tie up assets as collateral, like other financing venues, and pricing can be negotiated with flexible payments

Leasing Amounts

Depending on the lessor, a business can expect to arrange for lease financing for business and professional equipment from as low as $5,000 up to $3,000,000 with leasing terms ranging from two (2) to five (5) years.

Leasing Niches

The inherent nature of certain business niches can make leasing attractive, whether it is using a lease or offering leasing as an option to your business customers.

For agricultural businesses in most states for example, farms that have been owned for a minimum of five years can obtain financing up to $150,000 with just a simple application form and no tax returns. This is also true for construction equipment. Non-medical businesses can obtain financing up to $75,000 without tax returns or financial statements. Other niches include:

• Franchise Financing
• Sign Industry
• Municipalities
• Lease Referrals from CPAa, Attorneys and Consultants
• Lease Brokers

Purchase Options

There are various purchase options available to your business when the lease ends. For example, a business may:

• Return equipment
• Purchase at a fair or reduced price
• Renew the lease at a fair or reduced price

10 Great Reasons to Use Leasing

There are many reasons why Leasing can be a useful tool for your business, such as:

1. Leasing ties funding to the specific equipment where other financing tools may retain a hold or claim on your assets, include notes that can be called at any time, and may require additional collateral sources
2. Processing a Lease application can be much faster than traditional financing allowing you to take control of the equipment your business requires to support operations
3. Certain lease payments qualify for additional tax benefits
4. Lease terms are flexible to support length, payment amount and purchase needs of the business
5. Lessor can provide valuable guidance and advice regarding what makes sense for your business and your needs
6. Lease trade-in and upgrade options can reduce the risk of owning obsolete equipment or software
7. Offering leasing as a purchase option to your customers may be a valuable tool for supporting increased sales
8. Lease qualification can be assessed prior to running a credit score reducing unnecessary credit inquiries on your credit record, which result in lowering your overall credit score
9. Practically anything used for business operations can be leased (all types of capital equipment, hardware, software, and soft costs such as installation and consultation) freeing up working capital for other critical uses
10. Leasing terms are negotiable. With good credit and knowledge about Choosing a Lease, your business can cost-effectively secure the products, services and technologies it requires to be competitive and successful.

Where to Begin

For an alphabetical listing of Leasing options and providers, visit Lease Financing for Small Business

About Your Educational Champion

"Knowledge Institute, Inc. is a philanthropic organization and convener of entrepreneurial talent that specializes in economic and small business development by creating interactive business-to-business resource communities, educational curriculum and marketing communication strategies."

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Note: This information is presented to provide a general overview of small business options and related services. It is not intended to be an exhaustive representation. Data has been compiled by the Knowledge Institute for informational purposes only. Content is provided on an "as is" basis and is not intended to, nor does it, provide advice or create a customer relationship between the Knowledge Institute, BUZGate™ and/or any other organization named herein, and any reader.

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