Leasing vs. Other Forms of Financing

At GCR Capital we have been in the financing business for years. That’s why we know that leasing is the best way for small businesses to finance their equipment needs.

Still we do understand that many small business owners are used to taking advice from their local banks. Unfortunately it is not in your bank’s best interest to discuss leasing options with you, simply because most banks don’t have the ability to offer leases. More importantly, they aren’t willing to refer business away even if it means putting you into the wrong financing vehicle.

Let take a step back and look behind the curtains for a moment. Make no mistakes about it, banks are run on strict monthly quotas and loan officers are paid on performance. Therefore, it is always in your loan officer’s best interest to get you into as much unsecured debt as is feasible. It’s a simple fact of life-- if he doesn’t write x-dollars in loans every month, he will be out a job. So think again, when considering an offer from your banker. Is it the right financing vehicle and whose interests are being served?

Bankers are primarily set up to provide unsecured lines of personal credit

Bankers are primarily set up to provide unsecured lines of personal credit and mortgages. There are, of course, many situations where a bank loan makes sense. You want to eventually own your own home, so taking out a mortgage is a good idea. Equipment, on the other hand, as an asset with a fixed life expectancy, often needs to be replaced every couple of years and therefore there is no real advantage to owning it.

How about purchasing equipment outright? A cash purchase clobbers your business with a large financial outlay that will almost never be evened out on the balance sheet. You retain assets that will eventually need to be replaced and you’ve tied up valuable liquid assets that could be better put to use.

This means that you get to keep extra cash on hand.

Leasing, on the hand, allows you to pay off your equipment investment while it is creating profits for your company, rather than paying for it in advance of your return on investment. This means that you get to keep extra cash on hand-- a very wise decision, as you never know when those funds are going to come in handy.

Take a moment to consider a common business scenario. Let’s say that about once a year you will want to add equipment or technology as your business grows and as your current items become obsolete or worn out. If you were to take out a new lease for 50k (on a typical five year term), every single year for the next five years and then continue this practice yearly as you expanded, you would never exceed a debt of $250k but would continue to improve your assets as needed. At the fifth year, your first lease would expire and you could return the old equipment on the first lease and replace it with a new lease and modern equipment. Each subsequent year, the other leases would expire and you could do the same with those leases.

Using your bank would increase your tax burden every year.

If on the other hand you were working with your bank you would never be able to continue to grow in this way because your credit limit would have been reached very quickly. At the same time, using your bank would increase your tax burden every year, adding even more expenses to your business.

Leasing will allow you to finance almost any type of business equipment, including but not limited to:

• Technology purchases
• Office furniture
• Phone systems
• Heavy machinery
• Construction equipment
• Manufacturing equipment

Leasing is the number one way to fund expansions.

When it comes to running a small business leasing is the number one way to fund expansions and make new equipment purchases. Why not take 60 seconds today to fill out a leasing application find out how GCR can help you tomorrow?