Why-Lease? Rentalpha

Why Lease?

Ten Reasons to Lease/Rent…

Once a master rental agreement is in place, a lessee can often add equipment whenever, however and wherever they desire. Surveys have consistently ranked this as the most important benefit for lessees, which says something about the frustration levels that can result from dealing with budgets, bureaucracies and paperwork.

Leasing allows a firm to reserve their cash and borrowing power for operating expenses and other more intangible costs of doing business.

In many cases, lease payments can be structured to match budgetary or cash flow requirements. If there is no space left in this year’s budget, write a lease with no payments due until next year. If the revenues from the use of the equipment increase over time, write a stepped lease where the payments also increase over time. Payments can be made monthly, quarterly, semi-annually, annually, or any other way which works best for the lessee.

The wild card here remains the residual issue, but in many cases, a properly structured lease will be significantly less expensive than acquiring the same equipment through outright purchase, particularly on an after tax basis.

Just about any lease can be structured to meet the accounting tests for treatment as an "operating lease" thereby taking the lease obligation off the main balance sheet, which in turn can help by improving various financial ratios and performance indicators. In many cases, a lease will eliminate the possibility of a loss on sale when owned assets are eventually sold. If purchased and then depreciated, just about any high tech assets will be on the books at a value in excess of current market values.

Although each lease will differ, many companies will find the tax deductibility increased through leasing compared to ownership, particularly when dealing with high technology and other shorter-lived assets.

Many firms choose to own those assets which tend to appreciate in value (such as real estate) and lease those assets which tend to depreciate in value (such as equipment). By partnering up with a qualified lessor who has real expertise in particular asset classes, a firm can leave the headache of getting rid of old technology to someone with the expertise and contacts to do so efficiently. If you build into the lease "cancel and return" options as well as early buy out and technology refresh options, you can maintain the flexibility to move to new equipment throughout the financing period rather than just at the end of the lease term.

A lease makes things easier in terms of tracking costs relative to revenue produced; whether by product line, project, cost center or other indices. To help in this process, many leases will be written to include software, services, maintenance, training and other soft costs which are associated with the equipment itself, to cover all related costs under just one lease payment.

Most often, a company needs capital to grow. Companies acquire capital by either debt or equity financing or both. Debt must be paid back and goes on the company balance sheet as a debt. Equity does not need to be paid back, but it comes at the cost of ownership. A leaseback allows this to happen.

A leaseback is an agreement where an asset's seller leases back the asset from the purchaser. In a leaseback arrangement, the details of the arrangement, such as the lease payments and lease duration, are made immediately after the sale of the asset. Essentially, the seller of the asset becomes the lessee and the purchaser becomes the lessor.

OK – we couldn’t resist. We make Renting Easier!!

Cash Purchase Rental
Equipment Value The owner must accept any decrease in the value of the equipment. All risk associated with equipment obsolescence and depreciation lies with the rental company.
Disposal of Equipment The owner is responsible for the disposal of the equipment which has associated costs. The rental company is responsible for the disposal of the equipment that is returned.
Ownership All aspects of, and risks associated with ownership lie with the organisation. All of the risks of ownership lie with the rental company, not the user.
Payments Payment in advance. Payments are fixed and spread over the useful life of the equipment.
Taxation Owner may claim a tax deduction. Rental Payments are fully tax deductible over the period of the rental term.
Effect On Balance Sheet Appears as an asset on the balance sheet. Off balance sheet and is seen as an operational expense.
Flexibility No upgrade facility in place. An upgrade facility is available at any time during the rental period.