Q: Approximately how many companies lease goods in the U.S.? A: According to the Equipment Leasing Association (ELA), four out of five U.S. companies lease equipment yearly, totaling more than $200 billion worth of goods. Items leased include things like office furniture, company vehicles, technology goods and more.
Q: What are the different types of equipment finance companies available?
A: The companies involved in equipment financing and leasing are typically defined in three basic categories. The first is bank and bank owned, whereby the companies are generally selective in who gets backing for credit. Along with being selective in what kind of equipment financing they will approve, they generally have a hold on bigger transactions like more than $1 million dollars. Another is large finance companies, wherein the company is located in multiple cities and works well with equipment costing more than $100,000. Lastly, there are independent and broker finance companies, who end up either partially or entirely selling off their finance agreements to other firms. These companies are typically involved with deals below $100,000.
Q: Can a business owner’s credit score impact what they pay to lease?
A: Absolutely. A bad credit score can lead to higher leasing rates for business equipment financing. Among the items leading to a bad credit score include having a high balance or balances on your card and always only paying the minimum, having too many cards open at one time, and being late with even one payment.
Q: Does it matter who I choose to lease from?
A: Yes. Take the time to do some research on the company you’re thinking of leasing from. Along with pricing information, you will want to look at the company’s history and if it has a record of complaints against it. Not only do your own research, but ask for some referrals from satisfied customers who can vouch for this company’s service and quality of goods. Also search for a company that is forthright about its policies and doesn’t try to stick you with any hidden fees in the contract. Finally,be sure the company you work with will come up with a unique plan to suit your specific needs, given there is no one size fits all.
Q: Should I request “Fair Market Value Caps” when leasing equipment?
A: Yes. With FMVC, the rental and purchase choices entered into the agreement allow you to either keep leasing the equipment or to purchase it at the then fair-market value once the lease term is up. Remember, it is important to maintain the quality of the items you are leasing so you do not end up paying for repair costs at the time you turn in the items.
Q: Are my lease payments tax deductible?
A: In most cases, the IRS will allow your business to write off 100 percent of your equipment financing payment in the event the lease structure meets their guidelines, something which your tax consultant can advise you on.
Under Section 179 businesses can deduct the entire acquisition price of equipment, up to $500,000 in 2011. The first year 50% bonus depreciation was increased to 100% through 2011. The deduction starts to phase out dollar for dollar after $2 million, which makes Section 179 specifically slated to assist small to medium size businesses purchase the equipment they need. Among the types of business equipment to qualify under this tax code provision are machinery, computers, software and office equipment.
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