Leasing Improves Cash Management
No Down Payment
Purchasing equipment often requires a down payment of 10% to 20%, while TCF Equipment Finance typically finances 100% of the equipment cost. Additionally, incidental costs associated with purchasing equipment such as sales tax, installation, training and software can be included as part of the lease payment rather than being paid in advance with the down payment. Not tying up your cash in large down payments and incidental costs, allows you to use it for more profitable purposes.
Improved Cash Forecasting
Fixed Payments
The fixed contractual nature of a lease eliminates any uncertainties regarding the future cost of the equipment. This enables you to prepare more accurate cash forecasts and plans.
Predetermined Purchase Options
A TCF Equipment Finance lease can give the lessee the option to acquire the equipment for a predetermined amount. This is particularly beneficial to the lessee when leasing equipment such as construction, commercial vehicles and various types of manufacturing equipment.
Leasing is Convenient
Leasing from TCF Equipment Finance offers many convenient benefits not available through conventional forms of financing. Acquiring the use of an asset through a lease involves much less time and paperwork than purchasing the assets.
Leasing is a Less Restrictive Form of Financing
Most loans contain loan covenants (current ratio and debt-to-equity ratio limits, a minimum times-interest-earned ratio level and certain other minimum measures of profitability) which are often confusing to compute and time consuming to track. A TCF Equipment Finance lease does not contain these covenants providing you with the ability to make unrestricted financial decisions and can also help avoid IRB limitations.
Financial Reporting Reasons
Off Balance Sheet Financing
While purchasing equipment either adds debt or reduces cash, an operating-type lease does not change the appearance of your balance sheet. A TCF Equipment Finance operating-type lease does not require that you add a liability or reduce your working capital. Hence, your balance sheet retains its strength and your financial ratios (current ratio to acid test ratio) and measurements are better than if you had purchased the equipment.
Operating-type leases also require less bookkeeping than a purchase. Purchased assets must be capitalized and depreciated on your financial statements and loan payments must be separated into principal and interest, all requiring time and effort.
Improved Reported Earnings
Generally, operating-type leases have a more favorable impact on your income statement. Initially, the operating lease expense is less than the depreciation and interest expense for the loan, thus increasing your reported earnings.
Increased Return on Assets
Leasing improves your return-on-assets ratio. An operating-type lease will allow you to increase your earnings without having to add any assets to your balance sheet.
Tax Advantages
Lease Rentals are Deductible for Tax Purposes
Rental payments in an operating lease are fully deductible for federal income tax purposes.
Leasing Avoids the Alternative Minimum Tax (AMT)
Cash and bank financing forces a company to depreciate its equipment. Too much depreciation in any given year may trigger alternative minimum tax considerations.
