Why Lease?

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More than 80% of the Fortune 500 companies lease part of their equipment.  Of all the new equipment sold each year in the United States, about 30% of it is financed through some type of leasing.

 

Some of the primary reasons farmers and agribusinesses lease are:

  1. True lease payments are 100% tax deductible. A lease can accelerate the deductions compared to the allowances available with depreciation. With depreciation, it normally takes 8 tax years to fully write off most farm equipment. With a properly structured true lease, this can be shortened to 3 to 5 years.

  2. The lease payment is fixed for the lease term.

  3. Simplicity. The tax deduction is the same as the payment. It is easier to divide cost and tax deductions between partners or to allocate per acre costs. It can also be an excellent method to transfer equipment from father to son.

  4. It may open a new credit source and preserve existing credit lines for short term needs.

  5. Leasing helps you pay for equipment as you use it by letting the equipment’s earnings or savings make the lease payments. It frees your working capital for other more profitable uses while you also have the use of the equipment.

  6. Leasing, by helping you retain more of your cash, can help you buy more appreciating assets like land instead of tying it up in a depreciating asset like equipment.

Additional Reasons Other Businesses Lease:

  1. Leasing may require less initial cash than conventional financing.

  2. Off Balance Sheet Financing: A properly structured operating lease is treated only as a contingent liability and may improve balance sheet ratios.

  3. Division or subsidiaries of large corporations use operating leases when they need more equipment but have already used their capital budget for the year.

  4. Leasing offers a hedge against inflation. Productive equipment needed now, is paid for with future dollars that are worth less.

  5. When structured as an operating lease, it can help enhance a company’s ROA or ROI percentages.

  6. It can conserve working capital and liquidity to help comply with restrictive loan covenants.

  7. It can create an allowable rental cost (whereas interest does not) under certain supply contracts.

SCI Leasing (800) 435-4700