7 Important Things
To Know Before o
Financing Equipment q p
Philip A. Bruno, Senior VP & Chief Marketing Officer, Marlin Leasing Corporation
Most food and beverage manufacturers are familiar with equip- ment leasing and financing but may not know the kinds of specific information they need to make the best financing
decisions for their investments in equipment or software. Understanding
the ways in which leasing fits your company’s particular needs can help
to build a solid business case for financing as well as determine which
financing option to choose. This decision requires careful assessment
of your financial, operational and other situational needs, in addition to
knowledge of the many benefits leasing provides.
The following is a checklist of important issues to consider when
making decisions about leasing equipment:
1. Whether to buy or lease. First and foremost, the most important
thing to know before financing equipment is that leasing is usually
more advantageous to your business than buying equipment outright.
Equipment finance industry research shows that in 2013, 55 percent
of the projected $1.3 trillion total U.S. investment in equipment and
software, or $725 billion, is expected to be financed. The most recent
research available shows that in 2011, 72 percent of firms used at least
one form of financing. These statistics bear out that organizations agree
with the adage, “it is more important to have and use equipment than it
2. Cash flow/budget requirements. Financed equipment can generate income for your business that far exceeds the cost of your monthly
payment. Financing also enables you to stretch your budget to obtain
additional equipment you couldn't have afforded otherwise because it’s
more feasible for most businesses to make a monthly payment than to
make a large lump sum cash outlay. In addition, 100 percent financing is
available so that no down payment is required.
If your business experiences seasonal fluctuations, or has a project
or new line ramping up that requires equipment that will not generate
revenue immediately or will only generate it seasonally, there are lease
terms available that allow for these circumstances. Lower initial payments or deferred payments are among lease term options. The important thing is to assess how long it will be before revenue will be generated from using the equipment to offset the finance payments.
3. Capital expenditure plans. Most manufacturers, particularly in
this current economic climate, have reduced or limited budgets for business investment. If your company is like the majority of those facing
unlimited wants and limited resources, leasing equipment allows capital
budgets to be used for other business and operational purposes.
4. Equipment obsolescence risk. Technology changes and inno-
vations develop rapidly. Chances are that the software and equipment
you purchased two years ago are already outdated. Financing provides
a hedge against equipment obsolescence through options to either pur-
chase the equipment, trade it in for new equipment or return it outright
at the end of the lease term. Taking advantage of options to avoid obso-
lescence is critical to maintaining a competitive edge.
5. Credit availability. Access to credit is a key driver of business
growth. Financing equipment preserves your lines of credit and enables
you to save your bank borrowing capacity — important considerations to
accommodate both planned and unforeseen future business expenditures
your company may incur. Financing also has one-day credit approvals,
whereas banks can take days or even weeks. This speed-of-access to
equipment is another strategic advantage for your market position.
6. Tax Benefits. Tax code provisions continue to provide incentives
for businesses to invest in equipment. For 2013, the IRS Section 179
Deduction threshold for total amount of equipment that can be purchased
is now $2 million, and you can deduct up to $500,000 of equipment cost.
7. Standard Finance Plans. With a clearer picture of your business
situation and equipment needs determined from this checklist, you are
ready to think about the type of finance plan for the equipment you are
acquiring. Following are some of the most commonly selected ones.
Fair Market Value offers the most options both during and at the
end of the term, so this is suitable if you are concerned about obsolescence or want a small security deposit and a relatively low monthly
payment. At the end of the term, you have three options: extend the
term of the agreement, return the equipment, or buy the equipment at
its fair market value.
10% Security Deposit also offers a lower monthly payment. It is especially attractive if you can afford to pay a security deposit of 10 percent
of the finance amount at the beginning of the agreement. End-of-term
options still apply. The deposit can be used to extend the agreement or
you can return the equipment and request a refund of the deposit.
10% Purchase Option offers a fixed purchase option at the end of
the term. Upon final payment, you can continue to finance the equipment, return the equipment, or buy it at 10 percent of the original
$1.00 Buy Out is the recommended option if you are fairly certain
you will want to purchase the equipment at the end of the agreement.
Once the term expires, the equipment is simply purchased for $1.
This summary of topics to consider is key to the equipment financing
decision-making process. Finding a full-service equipment financing
company that can help you address these issues and answer your questions will help ensure that you get the right equipment at the best possible terms for your business. ◆
Philip A. Bruno has more than 20 years of financial services experience.
Marlin is a nationwide provider of equipment financing solutions for
small- and mid-sized businesses. He can be reached at marketing@
marlinfinance.com or visit www.marlincorp.com.