Leasing – A Great Alternative
Earlier this year, Citizens National Bank introduced an improved leasing program which we offer to commercial and agricultural customers. Leasing offers the opportunity to acquire equipment and machinery in a cost-effective manner with often-times a smaller payment amount than purchasing. Here’s what you should know:
Why should I lease equipment instead of buy?
Leasing is flexible. Whether you have irregular cash flow or simply want to keep your line of credit free for other uses, a lease can be designed to fit your payment needs. A lease provides the use of equipment for specific periods of time at fixed rental payments. Leasing is also practical. By leasing you transfer the uncertainties and risks of equipment ownership to the lessor, which allows you to concentrate on using that equipment as a productive part of your business. Your equipment needs can change over time and leasing allows you to stay on the cutting edge of technology by not getting caught with obsolete equipment. Leasing also has possible tax advantages – check with your tax advisor. Rather than deal with depreciation schedules and Alternative Minimum Tax (AMT) problems, you, the lessee, may be able to simply make the lease payment and deduct it as a business expense.
Lessees vary from small, one-person operations to Fortune 100 corporations. And the kinds of equipment being leased are just as diverse. Transactions range from a few thousand dollars’ worth of equipment to farm buildings and silos to medical equipment. 85% of companies in the US lease equipment.
How does it work?
You determine what you would like to purchase and work directly with the bank for financing. Terms can be set in a variety of ways, but typically equipment leases are made for up to five years and grain bins/barns may be made for up to ten years. For municipal and agricultural purposes, there are no taxes required on leases. They are typically set up on either annual or monthly payments. For annual payments the lease may be made for up to 80% of the value of the equipment. So for a five year lease, 20 % of the cost of the equipment would be due up front as the first payment and then four subsequent payments would be made annually over the course of the lease. Monthly payments typically require two payments up front.