Lease Financing

Leasing is a financing alternative if you are seeking funding to obtain business equipment. Finance companies, banks, and many firms that sell high-priced equipment will lease to you.

When you lease an item, the lessor retains ownership of it, while you make monthly payments for the right to use it. You can usually purchase the equipment at the end of the lease term for its market value or less.

A great advantage to leasing is that it may be allowed to be "off the balance sheet." This means that leases can be disclosed as balance sheet footnotes. They do not appear as debt even though they represent an ongoing company liability. This may sound like financial doublespeak, but it's not. Let's say a supplier is considering whether or not to extend credit to you, or a bank is weighing a loan proposal you have submitted. The lease commitment will play a relatively minor role in evaluating your debt burden.

Banks also tend to consider their total exposure when lending to small businesses. If you have obtained lease financing through a third party, they are more likely to lend you funds than if all of your borrowing needs have been met through them. This is especially important if your business is small, because most banks expect you to use them exclusively for traditional lending but may not care if you use a nonbank source for lease financing. In any case, keep your bank informed regarding any significant lease commitments you are considering before you sign any agreements.

By Streetwise Small Business Start-Up


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