What One Advantage to Leasing Outweighs The Others?
Kevin F. Clune, CLP
When I read this discussion question on LinkedIn, I wondered how other “followers” would answer. I was reminded of the anticipation in the scene in “City Slickers” where Curly expresses his one truth of life. Anyway, this particular question was posted by a contributor to a group of leasing professionals that I follow regularly. Not surprisingly, the majority of responses were the same as those identified throughout the leasing industry. They were:
1) Flexibility of a Lease Contract
2) Capital Preservation
3) Off Balance Sheet Accounting
I am in total agreement with all of these comments. In fact, we cite four primary benefits on our website which are essentially a reflection of the blog discussion. They include:
1) Convenience
2) Easy Budgeting
3) Preservation of Credit Lines
4) Tax Advantages
In today’s economy, it is even more apparent that financing capital equipment with a lease may become an attractive alternative to traditional bank loans. A recent Wall Street Journal article proves my point. It was titled, “More Risky Loans Allowed; the Feds ease rules for mortgages but tighten them for business”. The opening sentence stated just what I was thinking, “Washington has settled on a perfect credit-allocation strategy to stunt economic growth.”
As stated in the article, the new rules make it more difficult for banks to sell Collaterized Loan Obligations, or a CLO, to brokers such as Fidelity or Vanguard, who then bundle them and market them to investors. The difficulty lies in the fact that these brokers must retain 5% of a deal’s credit risk.
If a bank can’t sell these loans to investors, they will be disincentivized to extend credit on capital equipment. Therefore, your business may be affected by your bank’s reluctance to provide additional credit for your business, and a lease finance program may be a preferred alternative. After the recent historic “Wave” election, we can only hope that the Government relaxes this regulatory environment.
Regardless, there are still many advantages in choosing to finance a capital equipment acquisition with a lease, and some may be more important to your situation than others. However, we most frequently hear, "I like to lease through Clune because it's so easy and you're so flexible".
Let us know how you would answer this question,
Kevin F. Clune, CLP
Clune & Company, LC
