The Leverage of the Lease

 

In today's rapidly changing business environment it makes sense to consider all the options before paying for your business equipment - whether it's a photocopier, computer system, computer hardware or software, telephone system, security equipment, office furniture or anything else. Many business people will give great consideration to the actual purchase, getting quotes from different suppliers and considering different choices. When it comes to paying, however, they simply pay cash or use bank finance without fully exploring the available options.

Most businesses will think of leasing for cars, yet don't consider this option for equipment. Either managements don't realise that leasing companies will lease items with little or no second-hand value; or they don't know which way to turn to get expert help or advice. Again they don't realise that the leasing broker - a concept pioneered by Technology Leasing - came into being precisely to meet that need.

The leasing broker gives customers a single point of contact, providing access to many leasing companies (all with different lending criteria) and picking the lender best suited to the client's individual needs. For example, some leasing companies dislike computer equipment. Others will not lease to businesses with less that five year's trading to show. Some will lease on software on its own, though, while others will lease to brand-new start-ups. The broker must match the client to the leasing company, which means not only the one with the best rate, but also one which will finance the type of equipment and consider the client's credit rating on the merits of the case.

Using leasing allows a business valuable leverage. You pay for the equipment as you use and profit from it. There's and analogy with paying your staff; you wouldn't hand over three or five years' salary in one lump sum , so why pay for your equipment that way? Leasing enables businesses to get the equipment they need now. Those on limited budgets can acquire what they really want, rather than what the budget dictates. In the case of one firm of consulting engineers in Glasgow, leasing the equipment enabled them to upgrade their computer software and put them in a position to handle larger jobs at lower cost.

Leasing is also 100% tax-allowable. As the user you don't own the equipment - the finance company does. This arrangement allows the lease payments to be written off the profit and loss account rather than the balance sheet (where a depreciating item is a liability). The tax saving of up to 40% of the cost of the lease payments goes to the lessor. A large firm of solicitors in London was able with our assistance to lease Ј40,000 of furniture, renovating the office and improving its professional image, while making the above 40% tax saving.

Another benefit is that you don't need to contact your bank when leasing, so there is no need to impress or persuade the bank manager. You need not meet the broker, either. We arrange leases all over the UK for all kinds of different businesses and organisations, with equipment values from Ј1000 to Ј500,000 - in most cases without ever meeting anyone from the client. Everything can be done by e-mail, telephone and post, with the cheque going direct to the suppliers of the equipment.

Why increase your exposure to the bank when there is an alternative? The image of the friendly bank manager belongs to the past. Today the old gibe applies too often - that banks are happy to lend you the umbrella when the sun is shining, only to snatch it back at the first sign of rain. They will quote variable rates at so much over base (all the leasing we arrange is at fixed rates) and hide their profit by charging large 'arrangement fees'. Most bank overdrafts are repayable on demand at a time to suit the bank - hence cases of loans being called in, without the borrower's prior knowledge, after a large cheque has been paid in.

If you have a cash pile and want to pay for your equipment from that hoard, always consider one thing before parting with the money. Is there a better use for the cash than being tied up in rapidly depreciating equipment? Remember that, if you do use cash to pay for such equipment, you can't later, in case of cash need, refinance and get the money back. It may well make more sense to invest the cash in marketing or staff training - or purchasing inventory at discounted rates. Simply holding the cash in case of unforeseen circumstances may also be a wise financial strategy.

When you lease equipment for up to five years, bear in mind that you are not tied to that equipment for the whole term. Clients have the option to upgrade and change some or all of the equipment at any time during the term - although this is more cost-effective if done half-way or later in that term. You simply select the new equipment. A new agreement will then replace the existing one, including cost of the equipment and the outstanding payments on the old contract, which will be discounted. This option allows many companies to keep up with new technology by replacing their equipment every two or three years, often with little or no increase in their monthly payments.

In all, leasing via a broker gives the client more choice. It saves the time and money that would otherwise be spent on shopping around to get the best or right deal. And it provides the best independent advice to suit individual circumstances.

 



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