equipment financing Archives

Finance Lease vs. Operating Lease: Which One Should You Choose?

If you want to get the equipment your business needs quickly, leasing is an option. But which type of lease is best for your company?

Equipment financing can be challenging when you’re running a small business. Your starting capital may not be enough to get the assets you need to outdo your competition. Seeking financing solutions to buy what your business needs can also be difficult, and complex. Fortunately, you have the option to lease instead of buy immediately.

Two of your options are finance leases and operating leases. But what’s the difference between the two?

What is a Financial Lease?

Also known as a capital lease, a financial lease involves creating a contract that entitles a business owner to rent out the temporary use of an asset, mostly equipment. This is usually done over a long period of time.

Pros

For accounting purposes, this lease is considered a purchase of an asset for you as a business owner. So you own it on paper, even though you still haven’t paid for it fully.
You take the present market value of your asset on your balance sheet. As such, you’re allowed to claim depreciation and reduce your taxable income.
You can reduce your taxable income further by claiming interest expense.

The advantages of a financial lease work to reduce your business taxes, and you get to own the equipment you’re paying for all these months. However, it does come with some disadvantages.

Cons

A capital lease agreement is classified as debt in your balance sheet. You repay through your lease payments. This increases your debt to equity ratio. Having your company operate more on debt than your wholly-owned funds might scare off your investors, as they may see it as a risky way of operating your business.
Another potential disadvantage of the finance lease is that your company has full responsibility for the maintenance of the equipment.
You’re also stuck with the pieces of equipment you rent out for the rest of your leasing term. If you’re using electronic tools, like computers, its components may be obsolete within a decade or even just a few years, leaving you at a competitive disadvantage.

What is an Operating Lease?

An operating lease allows you to rent out equipment from a lessee, but unlike a capital lease, you don’t have ownership rights to the asset. This type of lease isn’t included in the company balance sheet as well. At the end of your payment term, you can choose to buy the equipment at market value or return them to your lessor.

This type of lease is often short-term.

Pros

Gives you greater flexibility since it’s a short-term lease. If the equipment in your industry tends to become obsolete faster than other industries, an operating lease allows you to upgrade without the big cost.
Its tax benefits allow you to deduct the payments you make as an operating expense.
Because you’re not renting to own an asset, you’ll generally have to pay less for your monthly payments, compared to capital leasing.

An operating lease is ideal if you’re a business that needs regular upgrades to your equipment. However, it also comes with some downsides.

Cons

Because this type of lease allows you to upgrade whenever possible, you may find that you pay more for your equipment in the long run.
Although you can deduct your operating lease payments for your tax returns, you still don’t own the asset. As such, you may not be able to claim deductions for the depreciation of your equipment, unlike capital leasing.

Which Lease is the Best Option for Your Business?

Asset acquisition through leases is a practical way to run your business at a manageable cost. But consider your options carefully because finance and operating leases can be complex without factoring in your requirements and tax situation.

Consult with a Regent Capital consultant to ensure you’re getting one that’s favorable for your business.

Regent Capital is a trusted commercial finance company. We turn your real-world financing challenges into success stories and results. Call us today at (888) 901-4207 for details on how we can help your business!

True Tax Lease: How Does It Benefit Your Business?

There are multiple benefits of using a true tax lease to fund your commercial equipment needs. Regents Capital breaks it down for you.

There’s no other way around it: commercial equipment is expensive, especially for small businesses and start-ups. Purchasing equipment is not the only option, though. Equipment leasing is a more manageable way to get the equipment you need while spreading out the costs over a fixed period of time.

Leasing terms typically run from 24 to 72 months. Contracts can run for much longer, too, depending on your business needs. Either way, considering how new technologies are regularly added to commercial equipment, you do not have to worry about being stuck with obsolete equipment in the long run.

If you’re looking into equipment leasing, one of the best options is a true tax lease. And here, Regents Capital breaks down the reasons you should consider getting this type of equipment lease.

How Does a True Tax Lease Work?

A true tax lease is a multi-year equipment leasing option where the lessee gains exclusive use and possession of the equipment throughout the specified period. Ownership rights do not typically pass on to the lessee but at Regents Capital, the end-of-term buyout option is always on the table.

The name “true tax lease” stems from the fact that the lessor takes charge of all accounting requirements and tax benefits. Meanwhile, lessees pay lower upfront costs and can put monthly payments under capital or operating expenses. These payments are typically lower than non-tax leasing options.

Regents’ true tax leases include stretch, skip payment, step payment, and operating leases. Each one has multiple tax advantages. The lease period is also usually shorter than the equipment’s economic life.

Through operating leases and similar leasing options, you can get up to 100% financing for your required equipment. Soft costs like transportation and installation are also included.

How Do Businesses Benefit from a True Tax Lease?

True tax leases are a sensible option for business owners because the leased equipment doesn’t count as a company asset or liability. Yet, because the leased equipment generally counts as a rental expense, it still qualifies for tax incentives. Here are more ways businesses benefit from a true tax lease:

No Bank Restrictions

True tax leases take away the hassle of blanket liens, escalator clauses, restrictive agreements, and other restrictions that are typically linked with traditional lending institutions.

100% Financing Options

Equipment leasing doesn’t only involve the actual equipment. Businesses also have to consider soft costs like delivery and installation which can be covered by a true lease agreement.

Flexible Payment Options

Unlike with finance leases where ownership is transferred to the lessee after the lease term, the lessor retains ownership after a true tax lease. This helps keep monthly payments flexible.

Off-Balance Sheet Financing

The off-balance sheet financing option could count as operating expenses and make your payments 100% tax deductible, instead of just depreciation and interest deductions.

Secure Your Equipment Financing with a Trusted Partner

Regents Capital has direct funding capabilities that change the way businesses finance equipment. And we can provide affordable and transparent financing for your business.

Contact a Regents Agent today and learn about the financial service that works best for you.

Equipment Financing: Is It Right for Your Business?

When you need special machinery but don’t have the funds for it, equipment financing is a good option. But is it always the right solution for your business?

Every business uses different types of equipment for its daily operations — from the basic devices, such as mobile phones, tablets, and laptops to more specialized machinery, like diagnostics machines, tractors, and manufacturing equipment.

Industrial machines and equipment can be costly. New or aspiring entrepreneurs rarely have a big budget for advanced equipment. Even established businesses may not have the funds to replace their machinery in case of a breakdown.

These are a few of the instances when equipment financing can help!

When to Consider Equipment Financing or Equipment Loans

Whether you need to invest in specialized vehicles or machinery or purchase computers for a growing team, you need to consider how you can afford this equipment. With an equipment financing loan, you can immediately obtain working capital to lease or buy the equipment you need. Also, you can manage your cash flow seamlessly since this type of financing enables you to spread out your payments over a longer time frame.

Any business can apply for an equipment loan. According to the Equipment Leasing and Financing Association (ELFA), 79 percent of US businesses finance their equipment through leases, loans, and other lines of credit.

Below are some of the common examples of business-related items that you can finance with equipment financing:

IT servers, software, and other tech equipment
Medical imaging equipment
Construction equipment
Restaurant equipment like ranges and ovens
Farming or heavy agricultural equipment
Trucks and other business vehicles

Considerations for Equipment Financing

Before you sign up for a loan, it’s best to know the benefits and disadvantages of applying for one.

Consider the following pros and cons of equipment financing:

Pros of equipment loans.
- Spread the cost of your purchase. For any business owner, cash flow is critical. Equipment purchases, in some cases, can complicate it. With an equipment loan, however, you can spread your cost to prevent cash flow troubles. You can put a certain percent down and pay the annual interest rate within a certain period.
- Receive funding for the purchase or lease of equipment. Even if you run a well-established business, chances are that you can run short on equipment funds. Fortunately, equipment financing can bridge that gap. Since these loans allow you to borrow money to pay for equipment, you don’t have to wait until you have the money to make important purchases, leases, or repairs.
- Increase your business’s future sales. If you receive an equipment loan, it can improve your company’s overall productivity. Having the right machine can help you complete orders faster, which may increase the number of customers you can accommodate. In return, this will boost your bottom line.
Cons of equipment loans.
- Higher rates than traditional loans. Equipment financing typically offers favorable, fixed interest rates. But if you have a good credit history, you may find lower interest rates when you take out traditional loans instead.
- Usage is restricted to equipment. Equipment financing can only be used for the equipment you need. This means you can’t use the money to cover rent, payroll expenses, or anything else.

Regents Capital Can Find You the Perfect Equipment Loan for Your Business Needs

There are many considerations when it comes to applying for an equipment financing loan. If you need guidance on the type of loan or are actively looking for an equipment financing loan, Regents Capital Corporation is at your service.

Contact us today.