MANAGEMENT - EQUIPMENT RENTAL/LEASING/PURCHASE
Advantages of Leasing:
- A lessee (the person to whom
property is leased) can enjoy the use of an asset without
a large initial cash outlay.
- Theres no down payment.
A loan may require 25 percent down, where a lease is
usually 100 percent financed.
- There are no restrictions on
a companys financial operations.
- Payments are spread over a
longer period of time.
- You have protection against
- There are tax benefits. Some
include deductibility of lease payments as operating
expenses if the arrangement is a true lease. Also, the
lessor (the person who gives a lease) usually takes all
of the investment tax credit, but it may help the lessee
since the lessee may have reduced payments in return. See
your accountant before committing to a lease to verify
- You benefit from consulting
advice from the leasing firm.
- Payment schedules are
- There are restrictions on
claims in the event of bankruptcy.
Disadvantages of Leasing:
- Theres a loss of
certain tax benefits. Tax benefits that go with ownership
of an asset are not available to a lessee.
- Theres no economic
value of an asset at the end of the lease term.
- Theres higher overall
cost in purchase.
- Lease termination is
- The lease represents a senior
debt obligation. Although in the event of bankruptcy,
claims of a lessor to the assets of a firm are more
restricted than those of general creditors, a lease may
be one of the first debts that can be claimed by a
creditor. When it comes to deciding whether to lease or
purchase, some follow the general guideline that if
it appreciates, own it - if it depreciates, lease it.
Mike Holts Comment:
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