Leasing has become a popular financing option because:
It preserves cash and bank lines
Leasing allows you to acquire the necessary equipment without using up your working capital; instead, cash is available for buying inventory, paying salaries, advertising and other costs of doing business, as well as for new business opportunities.
Further, leasing preserves your credit lines and borrowing capacity, in case you have a seasonal or unexpected demand for cash.
You avoid Payment in advance
Paying cash for equipment that will be used for years is like paying your employees in advance, for all the years that they will work for you. You pay employees a monthly wage for work produced during a given month. Leasing provides the same option by letting you pay for the use of a product as it produces - over time.
It is quick and convenient
The leasing transaction can be closed quicker than a conventional bank loan, with a simpler procedure and less documentation.
No need for collateral
Usually, the leasing company does not require any collateral, because the lessor retains the ownership of the leased asset. As a result, the client spends less time and money in order to close the transaction.
As a rule, leasing can finance a higher percentage of the delivery price of the equipment compared to a bank loan. In addition, the lessor finances the VAT, whereas under a bank loan VAT is usually financed by the client.
Equal Monthly Installments
The leased asset is usually paid by way of equal monthly installments, which makes it easier for the lessee to plan its cash outflow and simplifies the budgeting process.
Under financial leasing, the lessee is entitled to deduct the depreciation of the leased asset and the interest costs from the lease installment from its taxable profit. On a case by case basis, there might be other tax incentives, e.g. improved VAT recovery position, for which you need to consult your accountant or tax advisor.
Leasing contracts can be structured to meet the cash flow needs of the lessee in accordance with production flows and cash cycles.