Question

how lease would support and improve the business?

Answer 1

Lease

A lease is an arrangement under which a lessor agrees to allow a lessee to control the use of identified property, plant, and equipment for a stated period of time in exchange for one or more payments. There are several types of lease designations, which differ if an entity is the lessee or the lessor. The choices for a lessee are that a lease can be designated as either a finance lease or an operating lease.

For many businesses, it’s obvious that leasing can help increase cash flow in that, if you don’t have to spend all of your capital on your operating costs, you have more money overall in the bank, which means you will have more cash for growth - incidentals, hiring new staff, smaller purchases, and so forth.

There are multiple benefits of leasing if companies choose the right leases, the right terms, and the right products. Intelligent finance teams can calculate the ROI for any leased equipment (i.e. operating cost versus cost per month of the lease versus how much revenue each piece of equipment generates). Once ROI is calculated, and your company has determined that leasing is the smarter financial choice.

Leasing helps cash flow

This is primarily because there’s a lower upfront cost, which means you don’t have to save up and pay a large lump sum to get whatever asset it is you want - you and your business can have it instantly and choose to pay weekly or monthly. It’s now possible to lease almost anything you could buy. This includes cars, property, telecommunication and IT equipment, printers, machinery, furniture as well as construction equipment . Leasing offers lower down payments and lower monthly payments. It frees up that cash for lines of credit, smaller purchases, and investing in your company’s employees as you grow.

Following are benefits of leasing to business:

• Liquidity - The lessee can use the asset to earn without investing money in the asset. He can employ his funds for working capital needs.
• Convenience - Leasing is the easiest method of financing fixed assets. No mortgage or hypothecation is required. Restrictions involved in long-term borrowing from financial institutions are avoided. Formalities involved in leasing are much less than in case of borrowing from financial institutions.
• Tax advantage- Separate from any tax benefit a company may gain, lease payments can reduce taxable income in a more appropriate manner than depreciation expense. Remember that you treat operating leases like rentals by expensing the entire lease payment when the business makes it.
• Avoidance of initial cash outlay - Leasing enables a firm to acquire the use of an asset without making capital investment in buying the asset. The lessee may avail 100% finance from lease financing and avoid even initial investment in margin money as required under loan financing.
• The risk of obsolescence is borne by the lesser. This allows greater flexibility to the lessee to replace the asset.
• Purchase and renewal options - At the end of the lease, customers may choose to purchase the equipment, upgrade to a new system or continue to lease via an ongoing renewal of their contract.
• More attractive balance sheet- Monthly lease payments are viewed as a business expense instead of long-term debt. Having little debt on your balance sheet helps you secure financing to fund your business.
• Upgrade outdated equipment- Depending on your business type, equipment leasing can help you stay on top of the latest advances in equipment and technology. You can also determine the length of your lease, so if you work with technology that changes rapidly, you can take on a short lease to ensure you’re always at the cutting edge in your industry.