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Equipment Leasing

Economic Obsolescence occurs when a business equipment cannot keep up with the demands of the market or lacks the technology to help the business remain competitive. Leasing helps avoid obsolescence by allowing you to upgrade every few years. In other words, if the equipment appreciates, buy it. If the equipment depreciates, lease it. In addition to the initial cost and obsolescence, leasing your equipment can also provide your business with a substantial tax advantage. While you should always consult with your tax advisor first, most equipment leases can be structured so that you can write off 100% of the annual lease payments. Because a lease is a rental and the business is only using the equipment, the business can usually write off all of the monthly lease payments just like any other legitimate business expense.

The last major advantage of leasing your equipment instead of buying is that leasing allows you to not show the equipment on your balance sheet. Once again, this is because the equipment is being rented and therefore actually belongs to a different company than the one that is using it. For this reason leases are often referred to as “"off balance sheet”" financing and this can be a tremendous advantage to many businesses both large and small.

Big businesses prefer this option because they don't want to own millions of dollars in equipment. This equipment will depreciate substantially with the day-to-day usage. Whoever owns the equipment is responsible for the depreciation on their balance sheet. Also, large corporations may require that the board of directors approve any new loans to the business since. This can make it difficult for the management of the business to operate efficiently.

But a lease is not a loan and therefore may not require approval by the board for the managers to get the equipment they need. In smaller businesses this can also be an advantage because they will not show additional debt on the balance sheet that will affect their ability to borrow money in the future. If you are considering selling your business, this may also make your company more attractive to potential buyers since you will be showing less debt on the balance sheet.


Operating Leases

Operating Leases are similar to those leases explained above, where the neither the asset, nor the liability appear on the balnce sheet, but the expense may be fully deductable. At the end of the lease term, the business owner may have the option to pruchase the equipment if is is economically attractive. Otherwise, the equipment is returned to the leasing company. At the initiatiion of the lease, the business owner selects the equipmet to be leased and we will work to find the appropriate leasing company for your business.

Capital Leases

Capital Leases differ from operating leases for ownership and accouting purposes. Unlike the operating lease, the asset leased under a captial lease resides on your balance sheet. Also, you will own the asset at the end of the lease, usuallay purchased for nominal price. Because of the differrence in terms, including ownership at the end of the lease (often a $1 purchase price), the monthly payments for the same equipment will be greater under a capital lease than they would be under an operating lease. Depending upon the equipment being leased and your business situation, a capital lease may be more attractive for you.

Vendor Lease Programs

If your business manufactures and/or sells products to other businesses, you may benefit from using a vendor lease program. Under a vendor lease program, we will offer lease options to your customers, providing more options than cash or 30 day terms. For your business, a leased product will work the same as a cash sale, only the cash will be received from the lessor instead of your client. A vendor lease program can give your business a competitive edge over others who are unable to offer anything similar to their customers.

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douglas.evans@dwilliamcapital.com
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