Leasing equipment can boost bottom line

Paul LarkinsWhile history shows us that economic booms — and downturns — are cyclical, the incredible bull market we experienced in the late 1990s made many companies and individuals believe there was nowhere to go but up.

Now, with company after company falling short of quarterly projections, downsizing staff or simply shutting the doors, there is a very different outlook. In the current environment, all of us left in business are searching out ways to boost the bottom line to reach corporate profitability goals.

Part of that equation is how to best allocate resources to ensure viability. In this area, equipment leasing may be the answer.

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Leasing offers a valuable financing package that allows companies to maximize their purchasing power. Business owners rely on equipment every day — good economy or bad — to operate and grow their businesses. However, the benefits of equipment come from using it, not owning it. By leasing, a company may transfer the uncertainties and risks of equipment ownership to the leasing company and concentrate on using that equipment as a productive part of its business. With a lease, companies pay for equipment as they use it, instead of up front. In essence, leased equipment earns its keep.

As evidence of the value of leasing, the Equipment Leasing Association (ELA), a non-profit association representing companies involved in the equipment leasing and finance industry, recently studied current trends and found that, while the demand for equipment procurement has slowed, the industry is still projecting revenue growth of approximately 8 percent in 2001 and beyond. The ELA also reports that eight out of ten companies lease all or some of their equipment.

So what does this mean for your business? Leasing offers numerous advantages over traditional financing methods. The benefits, as described below, can contribute to the bottom line and a company’s ability to grow its business.

* 100 percent financing. Since a lease does not require a down payment, it is equivalent to 100 percent financing. Unlike other forms of financing, soft costs like installation and software can be included in the lease. This means companies have more money to invest in revenue-generating activities.

* Tax advantages. The IRS does not consider an operating lease to be a purchase, but rather a tax-deductible overhead expense. Therefore, companies can deduct the lease payments from corporate income.

* Balance sheet management. Because an operating lease is not considered a long-term debt or liability, it does not appear as debt on corporate financial statements, thus making a company more attractive to traditional lenders.

* Flexibility. As businesses grow and needs change, companies can add or upgrade at any point during the lease term.

* Asset management. A lease provides the use of equipment for specific periods of time at fixed payments. It assumes and manages the risk of equipment ownership.

* Upgraded technology. If the nature of your business demands having the very latest technology, a short-term operating lease can help get necessary equipment and keep cash. The risk of getting caught with obsolete equipment is lower because companies can upgrade or add equipment to meet ever-changing needs.

* Customized solutions. A variety of leasing products are available, allowing companies to tailor a program to fit month-to-month or year-to-year cash flow needs. Companies can also customize a program to address their specific needs and requirements — cash flow, budget, transaction structure, cyclical fluctuations, etc.

* Speed. Leasing allows companies to respond quickly to new opportunities with minimal documentation and red tape. Many leasing companies can approve lease applications in minutes, allowing a business to get the equipment it needs very quickly.

Should equipment leasing be a part of your company’s strategy, be sure to research all of your options and take the time to choose the right leasing company — as well as the right lease. Look for a partner that understands your objectives, is experienced with the equipment needed, and is committed to the relationship over the long term.

To aid companies in the search for the right lease and leasing company, the ELA has developed a tool called Lease Assistant, available at www.LeaseAssistant.org. Lease Assistant answers commonly asked questions about leasing, discusses important things to note before signing a contract, and offers a search engine for finding nearby or specialty leasing companies.Paul A. Larkins is president and chief executive officer of Superior-based Key Equipment Finance (www.kefonline.com), the nation’s fifth-largest bank-affiliated leasing company. He has more than 20 years of leasing industry experience and can be reached at (720) 304-1000.