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Great Financing Advice
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SOME HELPFUL ADVICE From TCF EQUIPMENT FINANCE -
You've selected the equipment you want for your business. That part was easy.
Now comes the big question, "How do you pay for it?"
You have several options, each with it's own advantages. Let's evaluate them.
- GOOD
CASH: If your business can afford it, you might decide to purchase the equipment outright.
That's fine but it may deplete the financial resources that you could invest back into your
business in more productive ways.
- BETTER
BANK LOAN. Again a reasonable decision, but not neccessarily a practical one.
Although it preserves capital, a bank loan may affect your available credit, and it will
probably dip into your cash reserve. Most banks do not offer 100% financing.
- BEST
LEASING. This may be the best alternative, because it offers the following advantages:
• Leasing may lower the total cost of the equipment. Tax advantages often make leasing less expensive than an outright purchase or bank financing.
• Leasing improves cash flow. Leasing allows you to pay for equipment as you use it to generate income for your business.
• Leasing preserves available credit lines. You get the equipment you need now, without tying up valuable credit lines. Your borrowing capacity is available for operating needs.
• Leasing provides fixed payments. Your monthly lease payments don't change, variable bank loans frequently do.
• Leasing avoids restrictive covenants. Leasing usually does not impact balance sheet ratios or other restrictions in loan coventants.
• Leasing offers 100% financing. Most bank loans require a substantial deposit or down payment.
• Leasing provides a better hedge against inflation. Although you acquire the equipment at today's dollar value, you pay for it over a term of the lease in dollars that are devalued if inflation occurs.
• Leasing conserves capital. Most businesses prefer to use their valuable capital as an investment in other aspects of their operation.aspects of their operation. |
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MORE Helpful Tips from TCF EQUIPMENT FINANCE:
LEASING IMPROVES CASH MANAGEMENT
Down Payment -
Purchasing equipment often requires a down payment of 10% to 20%, but IWS Financial Services typically finances 100% of the equipment cost. Additionally, incidental costs associated with purchasing equipment such as sales tax, installation, training and software can be included as part of the lease payment rather than being paid in advance with the down payment. Not tying up your cash in large down payments and incidental costs, allows you to use it for more profitable purposes.
IMPROVED CASH FORECASTING
Fixed Payments -
The fixed contractual nature of a lease eliminates any uncertainties regarding future cost of the equipment. This enables you to prepare more accurate cash forecasts and plans.
Predetermined Purchase Options -
a IWS Financial Services Equipment Lease can give the lessee the option to acquire the equipment for a predetermined amount. This is particularly beneficial to the lessee when leasing equipment such as construction, commercial vehicles and various types of manufacturing equipment.
LEASING IS CONVENIENT
Leasingfrom IWS Financial Services offers many convenient benefits not available through conventional forms of financing. Acquiring the use of a lease involves much less time and paperwork than purchasing the assets.
LEASING IS A LESS RESTRICTIVE FORM OF FINANCING
Most loans contain loan covenants (current ratio and debt to equity ratio limits, a minimum times-interest-earned ratio level and certain other minimum measurements of profitability) which are often confusing to compute and time consuming to track. A IWS Financial Services Lease does not contain these covenants providing you with the ability to make unrestricted financial decisions and can also help avoid IRB limitations.
FINANCIAL REPORTING REASONS
Off Balance Sheet Financing -
While purchasing equipment either adds debt or reduces cash, an operating-type lease does not change the appearance of your balance sheet. An IWS Financial Services operating type Lease does not require that you add a liability or reduce your working capital. Hence, your balance sheet retains its strength and your financial ratios (current ratio to acid test ratio) and measurements are better than if you had purchased the equipment.
Operating-type leases also require less bookkeeping than a purchase. Purchased assets must be capitalized and depreciated on your financial statements and loan payments must be separated into principal and interest, all requiring time and effort. |
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