What is Lease Finance and What are the Benefits for Business Owners?

Lease Finance is an arrangement between you, the business owner, and a leasing company that allows you to select and use an asset without purchasing it
outright. You make a monthly payment that is considered a business expense.

The types of equipment available include:

• Medical equipment for labs and doctor’s offices
• Exercise Equipment for gyms, hotels and office buildings
• Dental Equipment – exam chairs, x-ray machines, etc.
• Heavy Equipment for mining and construction
• IT Equipment – servers, software, monitors, etc.
• Audio and Video Equipment – for meetings and the entertainment industry
• Machine Equipment
  – manufacturing, CNC, welding, etc.

Depending on the business you are in, you may need a variety of different types of equipment. The costs of buying new equipment are exorbitant and will have a negative impact on
your cash flow.

Whether you are just starting out or expanding your business, asset leasing is a tool that protects your cash flow. You have less money going out initially and hopefully more money
coming in, once the equipment is in place.

A finance lease is also called a capital lease by some accounting groups. The International Federation of Accountants (IFAC) prefers the term finance lease. The term is generally
considered interchangeable with the term capital lease.

There are differences between how capital leases and operating leases are handled for accounting purposes and taxation. The wording of the contract will let your accountant know how to
list the costs on your financial statements.

In addition to the cash flow benefits, there are other benefits associated with leasing. Some benefits may be more important than others to your specific business. Here’s a brief
explanation.

Leasing allows you to protect any line of credit that you have with your bank. You need not use your business credit cards to purchase equipment or other assets. Your business remains
more liquid, as less of the company’s cash is tied up in assets.

Liquidity is important when bad things happen and for many other reasons. For example, it’s easier to get additional credit for items that you cannot lease when your assets are more
liquid.

Protection against obsolescence is another benefit of lease financing. In today’s world, computer components, audio visual equipment, medical equipment and even heavy construction
equipment can become obsolete in a short period of time.

With an operating lease, you can walk away from the equipment at the end of the term. You retain no responsibility for the disposal of the asset and you are free to invest in new
technology.

There may be other advantages of the lease finance arrangement including the ability to build your business’ credit history. The important thing is to choose a good lender. In most
cases, a direct lender is the best choice.