Lease Financing
Leasing is a financing alternative if you are seeking
funding to obtain business equipment. Finance companies,
banks, and many firms that sell high-priced equipment
will lease to you.
When you lease an item, the lessor retains ownership
of it, while you make monthly payments for the right to
use it. You can usually purchase the equipment at the
end of the lease term for its market value or less.
A great advantage to leasing is that it may be allowed
to be "off the balance sheet." This means that
leases can be disclosed as balance sheet footnotes. They
do not appear as debt even though they represent an ongoing
company liability. This may sound like financial doublespeak,
but it's not. Let's say a supplier is considering whether
or not to extend credit to you, or a bank is weighing
a loan proposal you have submitted. The lease commitment
will play a relatively minor role in evaluating your debt
burden.
Banks also tend to consider their total exposure when
lending to small businesses. If you have obtained lease
financing through a third party, they are more likely
to lend you funds than if all of your borrowing needs
have been met through them. This is especially important
if your business is small, because most banks expect you
to use them exclusively for traditional lending but may
not care if you use a nonbank source for lease financing.
In any case, keep your bank informed regarding any significant
lease commitments you are considering before you sign
any agreements.
By Streetwise Small Business Start-Up
