Businesses today are facing more and more challenges economically, which is why many turn towards equipment leasing.
Operating leases come with many benefits that companies love to take advantage of. In this article, the Blue Capital team is diving into why a company may choose an operating lease over a capital lease.
What is an operating lease?
An operating lease is less like a lease than a capital lease, and it’s more akin to renting. With an operating lease, you are permitted to use a piece of equipment by a leasing company for a given monthly fee. These payments are considered operational expenses, hence the name operating lease.
This type of lease is a great option for those not wanting to own the heavy equipment at the end of the term.
An operational lease term for equipment financing is less than 75% of the economic life of the machine or vehicle, and just like a capital lease, the value of the payments will usually equal or exceed 90% of its original cost.
5 reasons why companies prefer operating leases
Equipment financing solutions are available to many companies and there are so many benefits to leasing equipment rather than buying. Here are just five reasons why companies prefer operating leases.
1. Take less of a financial risk with an operating lease
Without equipment leasing, companies would have to use a sum from their capital to purchase the equipment or vehicles they need. Experienced financial advisors will often encourage business owners to not use their working capital and instead, finance their equipment.
The pandemic is a perfect example of what can happen unexpectedly and is why you need to preserve your capital as much as you can. It hit suddenly and unprepared companies suffered financially.
It is wise to spread the costs of heavy machinery or vehicles for your fleet rather than take on the full expense all at once. This will allow you to grow your business over a shorter period of time and put money into other areas.
2. A lease that’s flexible and easy to acquire
Operating leases are very popular among small businesses because they have a high approval rate and are fairly simple. When you are starting your business you are often faced with many expenses, and here’s where equipment leasing can help.
This type of equipment lease is flexible, which means that the terms and conditions may be able to be negotiated. This could be the duration of the lease, the interest rate, associated costs or sometimes even the down payment required by the lender..
3. Update equipment whenever you need to
In today’s world, technology is advancing rapidly and the machine you had five years ago may not be able to keep up with the job today. Operating leases allow your business to stay up to date with the latest and greatest machines, vehicles and equipment on the market.
If you need a piece of equipment now but are hesitant to wait for the next model coming out in a year, you can opt for a short-term operating lease so that you don’t have to wait for the equipment you need.
4. Protect your balance sheet
If you purchase a piece of equipment or a vehicle, the purchase will be recorded in your balance sheet where it can increase your debt and reduce your available capital.
However, if you decide to take on an operating lease, it’s likely that it will not be recorded as debt as it’s treated as an operating expense.
5. Tax benefits
One of the main reasons why companies prefer operating leases is the potential tax benefits it has. An operating lease may allow you to deduct your payments as operating expenses during the period in which you pay them.
Your taxes become simplified with an operating lease because the equipment is not included in your balance sheets and lease payments may be fully tax-deductible.
There is a huge advantage to working with an established equipment financing company like Blue Capital. They have an extensive network of clients in multiple industries so they help you find equipment or vehicles for you to lease.
Blue Capital Equipment Finance is a nationwide finance brokerage, and we have years of experience helping businesses grow with equipment financing. We offer many financial services and can help you easily get approved with zero down payment options and low-interest rates.
We have multiple finance options including operating leases and can help you find the right loan for your construction business so that you don’t have to let old, and unreliable equipment slow you down.