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Today’s Lesson

Why do businesses finance / lease equipment?

 

Commercial Lending is an ancient profession predating the current era (CE) by thousands of years. Here is a nice Wikipedia article if you would like more information on the history of banking.

https://en.wikipedia.org/wiki/History_of_banking

 

With a long, long industry history as a backdrop …let us explore a more current topic. Equipment Financing and Equipment Leasing. There are many valid business reasons for companies to finance and lease equipment ~ many of which center around Capital Preservation, Taxation, & Financial Management in general. Let’s explore a few of the more common real-world reasons. (Here is what the SBA has to say on this topic https://www.sba.gov/starting-business/choose-your-business-location-equipment/leasing-business-equipment). While I am an accountant & we could discuss balance sheet and financial ratio reasons and theory … let’s stick with the easy-to-understand Top 10 Reasons that Businesses Lease & Finance Equipment.

Coins

10. Best Foot Forward: Growing Companies are often able to put their best foot forward with new productivity-enhancing equipment. Consider the image that Trucks, Industrial & Construction equipment, Efficiency-Enhancing, Technologically-Advanced Equipment have on everyone associated with the company. Given that, Financing is often a prudent way to acquire needed long term assets of all types. Consider this: from customers to employees ~ State of the Art Equipment visually demonstrates management’s commitment to their business. While hard to quantify the true financial result of this concept ~ it is nonetheless real.

 

9. Expansion: What if you have demand, and no way to meet it without new equipment? A second excavator, another truck, more and better technology, factory expansion? These are all important aspects of growth, and commercial lending can be an important key in helping to manage the process.

 

8: Labor savings:  Ask Ford, GM, and other large companies if equipment may produce significant labor savings. Can you say robotics? … but it goes well beyond that equipment class and further applies to companies large and small. If you finance equipment and that asset reduces labor overhead by more than your monthly payment, you can make the case that buying with financing is easy to justify.

 

7:  Maintenance Savings:  Many enterprising companies acquire new equipment to replace outdated, repair-and-maintenance-heavy equipment, to simply save money. Supposing the monthly payment is less than maintenance, repairs, and downtime, industrious companies are better served in making an acquisition ~ all things being considered.

 

6.  Balance Sheet Management:  Sometimes leases are helpful with financial ratios, financial reporting, with banking covenants, and other similar financial issues. This topic is too deep for me to cover today.

 

5.Taxation Management:  Properly structured, a lease may provide for rental deductibility. Better yet … a loan may provide for a 100% write-off of the equipment in the year purchased – (see IRS Section 179 for qualifications). Imagine making just a few payments on a loan, yet, being able to write-off the full cost of the equipment in the current year.

Sounds like a win to me.

 

4.  Purchasing Power: Financial services in the form of a lease or a loan often allows for increased purchasing power … in as much as the buyer can afford more and better equipment.

 

3. Increased Efficiencies:If you can accomplish tasks better, easier, and faster by having ready access to capital equipment assets ~ it may make sense to become an owner. Ownership may require financing of some sort … or that may simply be the preferred way to purchase. Simply put, the equipment can pay for itself from the savings it generates.

 

2. Beats Renting! For businesses that rent equipment ~ consideration should be given to investing in the equipment. There is an entire host of savings and efficiencies under this broad category.

 

#1. To make more money! Having exceptional equipment (theoretically) should increase profits. This presumes that demand for the businesses goods or services exists. Increasing Profits is the Number 1 reason to financing equipment.

 

Ironworks

(https://www.ironworkscorp.com/)

 

Need some help in assessing your need or in obtaining capital for new equipment?  Come Grow with US!

I’m Doug Fuller ~ I wrote this message and welcome your call or email.

(816) 423-8021

dfuller@slsfinancial.com

About Doug…

Over 35 years ago, I graduated from college as a young accountant… wide-eyed, excited, and ready to chart my course. I was blessed to be hired by a great organization (during a very tenuous economic period in the early 80’s) ~ Associated Wholesale Grocers, Inc. (roughly 2B in annual sales) as their Subsidiary Accounting Manager. Part of my job was to ‘account’ for their equipment leasing and real estate leasing subsidiaries, and I reported to the CFO of this superbly run organization. It was an incredible training ground for fundamentals, systems, and organization. Little did I know then that a few years later I would launch Security Leasing Services, Inc. ~ an equipment leasing and financing corporation. It has been a professional love affair that has spanned these decades ~ a job that allowed me to help others from Main Street to Wall Street companies. When SLS set sail in March of 1986, I didn’t know what I didn’t know ~ including that people in sales sometimes did not operate with the highest level of integrity ~ yet, we all learn lessons don’t we? From that ‘realization’ it has been our resolve that success (win or lose a sale) is based on the simple premise that people will respect honesty (it is always the right behavior) and it is our duty to walk with integrity. To that end, I have tried to tell people what they need to hear rather than what they want to hear. It has worked very well for us over the years.

In March of 1986 ~ from an attic office in our 1200 square foot house, with one baby (Jennifer) in our home and another (Stephanie) soon to follow, we set sail and it has been more fun than I could have imagined. Our family has increased over the years with Jay & Jacob (our sons-in-law) and two magnificent grandbabies! Along the way, we have been nominated and received various awards and accolades, and I have served on committees and on the Board of Directors of a downtown bank. This is all important, yet, beyond my family, I am proudest of our sterling reputation and the long, long relationships that we have fostered with our customers from coast-to-coast, and with our many other business partners. These relationships span across decades in many, many cases, and is a commentary on how we run our enterprise. To that end ~ no matter the industry ~ great businesses are built one relation at a time, and all enduring relationships require trust. Our advice ~ don’t break that if you want to be successful.

 

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