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Commercial Equipment Lease - The Benefits of the Commercial Equipment Lease

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Any piece of equipment that is used to run a business or provide a service to customers falls into the category of commercial equipment. As the industrial age gave way to the technological age, business owners looked for ways to pay for the most current equipment models. Depreciation and obsolescence meant lower profit margins because of the requirements to purchase new equipment. The commercial equipment lease was developed for businesses in every sector and industry to allow the easy acquisition of office, factory, and computer equipment. The benefits of leasing commercial equipment span from cash flow increase to tax savings for businesses of every size, and include:

Funds Remain Available for Other Uses – Instead of purchasing equipment with saved cash funds, the business owner can use a commercial equipment lease agreement to acquire equipment and then use business funds for other expenditures during the course of the year. Capital equipment lease agreements mean that manufacturers are able to put their equipment into service for the benefit of companies even when manufactured goods sales figure decline.

Bank Lines of Credit Remain Available for Emergencies – Most accountants will recommend that a business owner carry an open line of credit with the bank for quick coverage of unexpected expenses. When equipment is leased instead of purchased, the lines of credit remain unused until an emergency arises. Lease agreements do not require interest expense as use of the credit line would so the money saved is available for daily operations.

Tax Benefits – Instead of deducting a portion of the calculated depreciation of purchased equipment, the IRS tax code has specific language concerning the percentage of annual lease cost that can be directly deducted from the gross business income. Tax obligations are more predictable because the lease agreement is a real business expense and not an anticipated percentage of depreciation as in years past.

Lower Initial Costs – New equipment purchases have always required large initial cash investments. Commercial equipment leases do not have a down payment requirement so that large sums of cash are not required when equipment must be added or replaced.

Fixed Lease Payment Amounts – Monthly payments for the commercial equipment lease are the same throughout the year. Agreements are specific to the lease agreement and will protect the business from market increases in decreases in equipment prices. When new equipment is added, the monthly expense can be predicted and set at affordable amounts so that company growth is manageable.

Convenience and Flexibility – Financial institutions that offer commercial equipment lease agreements have credit approval processes that are simplified for quick completion of the agreement. Acquisition of the new equipment is easier with the pre-approved lease agreement because both parties know what the business can afford as equipment is evaluated for purchase.

Avoid Technological Obsolescence – Industrial equipment has been improved through the addition of technology that adds capability to each function, but new equipment models come out much faster than the equipment in use can be exhausted of its useful life. Many lease agreements contain a “technology refresh” clause that allows the business to update equipment without rewriting the entire lease agreement.

Includes Delivery, Installation, and Training Costs – Regardless of business location, the manufacturer will make arrangements to deliver the leased equipment. Since leased equipment is the property of the equipment company the cost of installing the equipment is figured into the lease. Most equipment requires training for safe and effective use. All of these costs are figured into the cost of the lease agreement and then averaged into the monthly lease agreement.

The expired lease agreement would leave mountains of used equipment in scrap heaps if not for the secondary market that has developed for the people who are starting new businesses each year. Equipment with remaining years of usefulness can be acquired for reasonable prices for those who will prove the viability of their business over time and then step into a commercial equipment lease agreement. Computer equipment and medical equipment have been shipped overseas to businesses and hospitals that need newer equipment than they have but cannot afford the latest technology. As long as companies put out new models of equipment that companies need for success, the commercial equipment lease will remain the perfect way to acquire the latest business equipment.

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