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Why Lease?


Your Cash Position

The first consideration when exploring a lease, loan or outright purchase of equipment is your cash position.  A business needs cash to function and survive.  When you outlay large sums of cash to purchase equipment you have withdrawn or reduced your reserves and potentially placed your company in a strategically bad position.  If a sudden opportunity presents itself or a seasonal or unexpected downturn in business occurs you may not have the financial resources to act quickly.  Instead you have to search for other funding which can take days or weeks.

The entertainment industry is always in flux and you should have a financial cushion to absorb the downturns when they occur.  A Lease versus cash ownership gives you the ability to stabilize your expenses and take advantage of tax benefits, in essence reducing the cost of the equipment.

There are essentially three equipment financing options for a company.  


Fair Market Value Leases

Fair Market Value Leases are the most common and are often referred to as a True or Operating Lease.  The advantage of this lease is it gives you the opportunity to keep, return or extend the equipment's lease.  This lease is best for television production equipment as technology evolves, the equipment tends to lose a great deal of it's value quickly.  At the end of the lease you may want to replace it with something that is more in demand or extend the lease to pay down to a point where you can purchase it for $1 or a more reasonable price.  This lease allows you to deduct the payments on your taxes, plus the amount of payment is typically less than a traditional loan, or the Dollar Buyout Lease. 

Dollar Buyout Lease

Also known as a Capital Lease, this is essentially a loan structured as a lease so at the end of it, you can purchase the equipment for one dollar.  If your intent is to keep the equipment at the end of the lease, this may be the best choice.  The disadvantage of this lease is that it becomes a liability on your balance sheet and the payments are not deductible, only the interest charges.

Lease Back

Lease back is essentially a financial program in which we buy equipment that is already owned by your company, giving you instant working capital, and then lease it back to your company over a specified period of time.  The Lease can be a Fair Market or Dollar Buyout, however, there may be more scrutiny of your finances.  But the end result is you have new financial flexibility through a strong cash reserve.

Here is a comparison of a loan versus a lease in terms of monthly payments
  • $100,000 Principal Amount
  •  Interest at 12% per Year
  • Lease Residual of $20,000
  • 36 month Term
Monthly Lease Payment:  $2,857

Monthly Loan Payment:  $3,321


There are three predominate forms of Equipment financing:

1)  Self Finance:  Uses your own personal or company cash to buy the equipment.  The company owns the equipment and will have access and use of the equipment until the company decides to sell or salvage it.  Because the equipment is owned by the company, the depreciation is tax deductible, and the asset can be used as collateral for other loans or leases.  In today's business climate it is best to keep as much cash in hand as possible to cover shortfalls in sales and unexpected expenses.  Leasing allows you to minimize the monthly payments so you maximize your cash position so if a downturn occurs you have the cash reserves to meet you obligations. 

2)  Loan:  Loans come from banks, vendors, manufacturers, third parties, friends, and relatives.  When done through a bank or other financial institution the loan counts against your credit and increases your liabilities on your balance sheet.  A loan is based on the total cost of the equipment, less any monies you put up as a deposit, or partial payment for the value of the loan.  You get to deduct the interest on the loan, plus there may be tax benefits, But the monthly payments are often significantly higher than a lease, potentially eating through your cash reserves at a faster pace.  At the end of the loan you own the equipment, and must then decide whether to replace, sell, or salvage it.

3)  Lease:  Operating or True Leases are funded by many different financial institutions and are often easier to attain than a loan.  The lease does not necessarily count against your credit, depending on the credit history of the company, the principals, and the type of lease.  In most lease situations, the equipment is owned by the leasing company and leased to the end user with a specific set of terms and conditions.  You get to deduct the entire amount of the lease payment on your taxes, however, any additional tax benefits may go to the the Leasing company, again, depending on the type of lease you choose.


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