Duane H. Marchant, president, abcCapitalFUNDING Co.

As published in Scotsman Guide's Commercial Edition, July 2005.

Something all businesses have in common, regardless of industry, is the need for equipment. The type varies from business to business, but every company faces the challenge of how to pay for the required overhead. Essentially, it’s all about financing.

Annually, $280 billion is spent on equipment leasing in the United States, according to the Equipment Leasing Association of America (ELAA). In the past decade, equipment leasing has increased in popularity for companies looking to acquire new equipment. ELAA also reports that as many as eight out of 10 businesses in the United States choose to lease some or all of their equipment.

A decision to buy or lease equipment requires careful consideration for your clients. Companies need to think about how they will meet the challenges of operations, growth and payment for the required overhead costs.

What exactly is a lease? Simply stated, it is a long-term contractual agreement that grants the user (“lessee”) use of equipment. The lessee makes periodic payments to the owner or provider (“lessor”) of equipment during a specified time period.

To lease or not to lease, that is your clients’ question. There are many advantages to leasing over financing equipment. It allows businesses to:

1. Retain capital strength: With new and more-expensive equipment continually appearing in the marketplace, many companies find it more affordable to acquire equipment through leasing. Leasing allows the purchase of equipment and technology needed while spreading affordable payments over time. One of leasing’s advantages is that it requires minimal upfront costs compared to bank loans, which require a substantial down payment — in some cases, as much as 25 percent. Leases usually require only two advance payments at the beginning of the lease. Leasing also allows a business to reserve more capital for other day-to-day expenses.

2. Find the best use of capital: Leasing can usually finance the soft costs associated with equipment purchases, such as installation, training and software. This enables the best use of capital and helps a company maintain capital strength.

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