Posts
Leasing is an appealing and non expensive option for small business owners looking for financing alternatives. Here we present some the negative and positive aspects of this method.
Let us first name a few of the positive sides of leasing.
One of the main aspects of leasing is the fact that it allows an owner to fund an asset through its own resources and still keep an attractive profile for future bank funding. These operations may be operationally and financially risky for some banking standards.
Leasing provides flexible timing, quantity and access to goods allowing the company to have more cash for its operations.
Leasing allows companies to maximize savings and the efficient use of working capital. When a company has more available funding, it can then invest on new and more sustainable technology and materials. On the contrary, a business not using leasing has to look for expensive sources of funding like banks or capital investors. This makes leasing attractive because the company does not have to divide social equity in shares and cede control to external new partners.
Leasing may also reduce the amount of taxable dollars through amortization. Given that the value of a leased piece of machinery is not actually registered as a purchase spending is reduced and within a period maybe smaller than the accelerated depreciation.
Nevertheless, there are some conditions for the tax exemptions to be applicable:
The leasing contract can only be for machinery or property and must be leased from a period of 2 to 10 years. The latter is used mostly for long term assets like the leasing of property. The contract has to include all considerations related to the use of the property. The leasing contract should also include a clause that gives the lessee the option of buying the asset.
Some of the negative aspects of leasing are:
The most common argument against leasing is the not ownership of the asset after punctual compliance to the contract. Especially, when some contracts will not even give the lessee the options to purchase the asset.
Leasing also has a relative cost compared to bank financing. The company leasing the asset may have to pay for the cost of insurance which it would not pay if the bank had financed the purchase.
Let us first name a few of the positive sides of leasing.
One of the main aspects of leasing is the fact that it allows an owner to fund an asset through its own resources and still keep an attractive profile for future bank funding. These operations may be operationally and financially risky for some banking standards.
Leasing provides flexible timing, quantity and access to goods allowing the company to have more cash for its operations.
Leasing allows companies to maximize savings and the efficient use of working capital. When a company has more available funding, it can then invest on new and more sustainable technology and materials. On the contrary, a business not using leasing has to look for expensive sources of funding like banks or capital investors. This makes leasing attractive because the company does not have to divide social equity in shares and cede control to external new partners.
Leasing may also reduce the amount of taxable dollars through amortization. Given that the value of a leased piece of machinery is not actually registered as a purchase spending is reduced and within a period maybe smaller than the accelerated depreciation.
Nevertheless, there are some conditions for the tax exemptions to be applicable:
The leasing contract can only be for machinery or property and must be leased from a period of 2 to 10 years. The latter is used mostly for long term assets like the leasing of property. The contract has to include all considerations related to the use of the property. The leasing contract should also include a clause that gives the lessee the option of buying the asset.
Some of the negative aspects of leasing are:
The most common argument against leasing is the not ownership of the asset after punctual compliance to the contract. Especially, when some contracts will not even give the lessee the options to purchase the asset.
Leasing also has a relative cost compared to bank financing. The company leasing the asset may have to pay for the cost of insurance which it would not pay if the bank had financed the purchase.
About the Author:
Wade Henderson - very Professional - 15 yrs in the Business Finance - reputation for getting the deal done. IMMFinancial.com Installation and Training Equipment Leasing Lawn and Garden Equipment Leasing
No comments:
Post a Comment