If your clientele relies on you to deliver specific hardware or software, then the direct finance lease is the ideal option for you. This is especially true if you already own or are establishing a business. It’s a cheap option for getting the inventory you need to run your own small business without resorting to capital leases or medium term loans.
Get to Know what is a Direct Financing Lease
In contrast to capital leases and operational leases, the equipment leased under this arrangement will not be used by your organization but instead leased out to another party. Leasing the equipment to your customers will provide your business with a steady source of cash, rather than the need to borrow money to buy the equipment at the conclusion of the lease.
For online businesses such as casinos, for instance, online slots NetBet that offers specialized services, such as consultancy, this might be a lifeline in these difficult economic times. Certain businesses can’t afford to keep a significant stockpile of items on the off chance they may eventually find customers who will lease them.
It allows business owners to lease-purchase necessary equipment as and when required without having to front large upfront costs.
Adjustments Needed
A company will only use a leasing agency or company for this lease form if they are offered certain guarantees. The leasing agent may want extra guarantees, such as personal collateral or bank statements, to ensure that the lease-to-own terms will be adhered to and payments will be completed in a timely manner.
This is done more out of concern for their safety than out of misplaced mistrust. Financing means your business is on the hook for the whole amount of the equipment’s purchase price, and the lender can take it back if payments are missed.
Customers owe all payments to you and have no liability to the leasing agency regarding the equipment. That’s a private business between you; your goal should be to use the arrangement to generate enough cash to cover your ongoing obligations to the original agent, plus some to spare for personal gain.
When you buy anything, it’s yours to keep and improve upon. You and the leasing agent can work out a separate agreement for the equipment’s maintenance, which you can then pass on to your client. Your company and the leasing agent’s contract will not be transferred to the client under any circumstances.
Bottom Line
The primary advantage of a direct finance leasing agreement for your company is that it enables you to build an inventory without incurring enormous initial capital expenditures. In addition to helping you finance the equipment you’ll be leasing to your customers; this strategy may help you generate substantial revenue from those customers.
In addition to the depreciation write-off, your company may take advantage of tax regulations that deduct the equipment’s purchase price from the resulting taxable profit. If the leasing arrangement is executed correctly, you and the leasing agency from whom you obtain the goods will benefit.