Leasing equipment can become very advantageous to a small business owner. The company which finances the equipment retains ownership, while the business owner has the right to use it in exchange for monthly payments. Each lease will have specific terms, but in general, your small business can trade the equipment if it fails, or even switch it for a better model. The lease payment can be used as a tax deduction for the small business, yet it can be reported on your balance sheet as a footnote. This denotes that it is not included in your total debt burden. A down payment is not usually required on a lease, so you can get the equipment your business needs without hindering your cash flow.
If you have no small business credit or even bad business credit, leases are easier to get than loans. You can exchange your leased equipment for state-of-the-art models. Furthermore, you can choose to purchase the equipment or lease new equipment once the lease expires.
Additionally, leasing equipment can be of immeasurable value to a small business without access to immediate operating funds, because it can be a valuable strategy in building strong business credit. Leasing vendors generally report payment activity more frequently than other types of lenders and treat credit reporting with more careful consideration due to the nature of the industry.
Each leasing agent will have particular standards for accepting your small business for a lease, but there are 4 main factors that are commonly reviewed:
The leasing agent will request at least 3 trade references or companies that you have dealt with via your business, in which you had payment obligations.
The leasing agent will review your small business bank account and note your average bank account balance. It is favorable if the amount of your monthly lease payments is reasonable compared with your average account balance.
Your corporate filings with the state—including articles of incorporation and financial statements—play a role in the outcome of acceptance for a lease.
Dun and Bradstreet’s Paydex score for your business can positively or negatively affect the results of your lease application.
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Ilya Bodner
Small Business Owner
Initial Underwriting Group
