Main Value Of Equipment Leasing

“The Primary Value Of Equipment Leasing To Established Companies Is Leverage”

If you are a company that is more than two years in business, has established cash flow and credit, then equipment leasing can provide an incredibly valuable form of business financing leverage to you.

To be clear, equipment leasing can also be available to start ups and companies with less than two years of operating performance under their belt, but in those cases, the leverage than can be acquired is more similar to equipment loans or business loans for these types of companies.

For more established companies, equipment leasing solutions can provide financing amounts at or near 100% of the cost of the asset, and in cases where there are delivery, installation, and even training costs, these can all potentially get financed into an equipment lease as well.

Traditional business financing facilities provided through banks and institutional lenders will top out at the 75% to 90% lending range for the value of the equipment.

Leasing companies, on the other hand, can be much more aggressive with the financed amount, requiring very little money down, and many times only requiring the last payment on the lease in advance.

When you look at the overall balance sheet of a company, lower rates typically are linked to debt equity ratios ranging from 2:1 to 3:1, but if you’re generating enough cash flow, businesses like transportation companies can get up to 7:1 or higher debt equity ratios through the use of equipment leasing facilities to maximize the potential leverage of their equity.

For companies that still fall into the 2:1 to 3:1 debt equity ranges, equipment leasing is more likely to come in at or near 100% of the asset value due to the strength of the balance sheet.

Even in cases where a bank or institutional lender may beat out an equipment leasing company on rate, the business owner may still want to take the lease financing deal if he or she can go from say 75% loan to asset value to 100% or more.

This an be an enormous benefit to cash flow as available cash can be deployed into working capital to fund more inventory, more wages, more receivables which all can lead to higher profitability.

That being said, the equipment financing world can be very competitive, especially for companies with a strong balance sheet, cash flow, and credit rating, providing you with the opportunity many times to get both great rates and higher leverage through equipment leasing.

This is also an area where a business with strong financials can negotiate a better deal among competitive sources by better understanding just how far a leasing company will go to get their business.

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About the Author Brent Finlay