How A Direct Financing Lease Can Benefit Your Small Business

If you own or are starting up a business that will have a clientele that is dependent upon you to provide certain equipment or software for their use, the best way for you to get that equipment or software would be through the direct financing lease. It is an affordable way of accumulating the inventory you need to operate your own small business, without having to enter into an expensive loan or capital leases.

What is a Direct Financing Lease?

This type of equipment leasing plan differs from a capital lease or operating leases in that while your company is purchasing the equipment through leasing from a leasing agent, the equipment will not be used by your firm, but leased out to a third party. Your company is not leveraging your capital in order to purchase the equipment at the end of the lease but will be using the income stream generated by leasing it to your clientele instead.

In an uncertain economy, this can be a godsend to consulting firms and other companies that specialize in providing select services to their clients. Not everyone can afford to hold onto a large inventory on the off chance that they will have the clients they can lease it to. With this type of equipment financing, business owners can lease-purchase what they need, when they need it, without investing significant amounts of capital.

Special Considerations

In order for a business to enter into this type of leasing agreement through a leasing agent or firm, there must be some assurances given. The leasing agent may require some kind of personal collateral or additional documentation that the leasing-purchase agreement will be fulfilled and that all payments will be made, on time. This is mainly meant to be a protection for them, and not meant to be an indication of a lack of trust. Your company is responsible for the total purchase price of the equipment through financing and they retain the right to repossess that equipment should you fail to make the payments.

Your clients are responsible for making their payments to you of course and have no responsibility to the leasing agent for the equipment they will be using. That is between them and you, and you should use that agreement to generate enough of an income stream so that you can make your payments to the original agent, with enough left over to create a profit of your own. Maintenance of that equipment can be negotiated separately with the leasing agent and your firm, with the benefit passed onto your customer. Once you own the equipment, it then falls to you, as will upgrades. Nothing in the agreement between your firm and your leasing agent will transfer to your client, period.

End Benefits

The most important benefit of any direct financing lease arrangement for your firm is that it allows you to amass an inventory without laying out huge sums of cash up front. It also allows you to create a significant income stream from your clients to aid with the financing of the equipment you will be leasing to them. Your firm also benefits from certain tax laws that will allow you to deduct the value of that equipment from that income, as well as being able to deduct the depreciation. Done correctly, everyone involved in the leasing arrangement wins; from the leasing agent you get the items from, to your clientele.

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