Top Reasons Why Lease Finance Could Be Your Best Option

To set up a business it can take a fair amount of cash as you need to provide for the acquisition of assets that are long-term or capital in nature as well as for operational or revenue expenses. Often business users find themselves scrambling to arrange adequate cash especially when businesses are so new that they do not qualify for bank or institutional finance. When there is a funds constraint, among the best ways of acquiring capital assets is through lease financing, instead of outright purchase.Take a look at some of the biggest advantages of lease finance.

Leasing Makes Available Funds for Alternative Uses

When you go in for lease finance to acquire a capital asset such as factory or office equipment, there is no need of spending a substantial amount of cash to purchase the asset outright. Lease finance only entails making monthly payments for a fixed and agreed upon tenure. Consequently, you can deploy the cash into other avenues that may be more critical such as revenue or promotional expenses. The cash flow of the business also is stabilized since the payments are usually spread over many years.

Cheaper and Quicker Credit

Small businesses can find it very challenging to obtain finance form the more conventional institutional finance channels such as banks and credit unions as they tend to be more bureaucratic regarding their eligibility norms and documentation, and take a long time to process loan applications. Leasing companies, especially those that are the captive organizations of manufacturers, are usually extremely quick to respond to client inquiries and enable asset acquisition in a very short time frame. Due to competitive pressures, the finance rates too can be significantly lower than that of banks, and often you can take advantage of the promotional offers and loyalty schemes for further benefit.

Lessee’s Borrowing Capacity Unaffected

When a loan is applied for from a bank or similar institution, they take into account the exposure to debt the company has already built up. When an asset is taken on lease finance, the asset does not enter the company’s books, and the amount of the lease finance is not held to be debt. Hence, the borrowing capacity of the company remains unaffected, and it is able to take on loans if so required. The lease rentals form part of the revenue expenses and show up in the cash flow statement, rather than the balance sheet.

Protection against Obsolescence

When a capital asset like a photocopier or a car is taken on lease finance, it is for a fixed period, after which the lease holder is entitled to simply return the asset and walk away. In sectors where technological obsolescence can be very high, as in computers and communication equipment, it makes sense to take them on lease finance as at the end of the lease period, the old assets can be returned and new ones again financed through a fresh lease. Under bank finance, the company would have to wait till the item was fully depreciated and is able to write off the asset or it has to find a buyer before purchasing new assets.

Termination Rights

Generally the lease holder is given the right to buy the asset from the landlord after the expiry of the lease contract period. However, in case you need to terminate the lease before the scheduled end, then you must be ready to pay the penalties specified in the lease agreement. If the lease is sought to be terminated only to take more advanced equipment, then the leasing company will usually agree to rollover the dues into the new lease agreement so you will be saved from having to fork out a hefty sum at one go.

A good way of terminating your lease without having to pay penalties is to identify another customer who is willing to take on your lease. While this used to be a fairly long and cumbersome affair earlier, with the formation of lease swapping groups on the Internet, it has become more practical and convenient. You can access a number of websites that specialize in matching lessees and new customers; of course fees to avail of these services need to be paid.

Amy Carson is a senior customer relations manager at, among the more established early lease termination facilitators. She has more than a decade of experience in lease finance.
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