Posted by Nikki Wardle on Nov 10, 2016 9:00:00 AM
When you're trying to make a big financial decision, it's helpful to be able to see quantifiable benefits. Unfortunately, many big choices have vague, long-term advantages that, while good for your budget and your company, aren't as helpful to the decision-making process because you can't measure them. The good news is that, when it comes to the benefits of commercial leasing, it's easy to see just why this choice is smart.
Doing the Math
To show you just how beneficial a lease can be, our equipment financing experts crunched the numbers. The process is called "evaluating a lease," and with a few simple calculations, a little bit of homework, and a couple of minutes, you can see for yourself just how well a lease could serve your company.
Step 1. Evaluating a lease begins by subtracting any tax deductions and savings from the cost of the lease payment. The resulting number is called the "net cash outlay" for each year of the lease.
Step 2. Next, take the net cash outlay and discount it to account for the time value of money. The new value is referred to as the present value. To put it in smaller, everyday terms, imagine that you have a choice between taking $100 in five years and taking $10 right now. Taking the time value of the money into account, would it be smarter to accept the larger amount later, or the smaller amount now? This is what present value helps you visualize.
Step 3. Finally, it's time to consider how the present value applies to your situation. Compare the present value to the cost of buying and owning construction equipment, including all of the advantages and disadvantages. Almost every time, you'll find that a lease is the best option--not only because it allows for flexibility and freedom, but because it is financially safer than owning.
This is one easy way to find the quantifiable benefits of leasing. However, once you've seen the straightforward data, it's time to return to those bigger, long-term, difficult-to-define advantages we mentioned earlier. They may not be as helpful as concrete numbers when it comes to making a decision, but these benefits are still worth your attention--if only so you can get a better idea of how a lease could strengthen your company.
Now that you've got the numbers, it's time to take a look at the big-picture benefits of commercial leasing.
- Down payment blues. Buying construction equipment is a huge expense, one that is made even more difficult to shoulder thanks to some hefty down payments. When you choose a commercial lease, you won't have a down payment to contend with, which frees you up and allows your company to remain agile enough to "roll with the punches" of a difficult economy.
- Restrictions. When you get a loan, you often end up agreeing to various restrictions on your financial operations, which effectively anchors your company--and that affects the landscape in a big way. What opportunities could you be missing by signing away your freedom? With a lease, these restrictions are nonexistent, meaning that you get to enjoy the benefits of your equipment without having to give up your right to make snap decisions and quick financial moves.
- Payments. One of the best parts of a lease is the flexibility of payments. While a loan is usually strict in terms and charges, a commercial lease allows you to make smaller payments over a longer period of time, giving you the breathing room that you need to keep your company healthy.
- Responsiveness. Finally, when you choose a commercial lease, you are making a decision to engage your company more directly in the ever-changing world of technology. You'll never be tied down by obsolete equipment or outdated processes. Leasing lets you move just as quickly as your customers, meaning that you won't have to keep paying off a loan for a piece of equipment that everyone else is upgrading.
There are countless benefits to a commercial lease--some of them quantifiable, some of them big-picture. If you want to get a better idea of how you can put all these benefits to work for you, contact us today!