Why do businesses lease?

There is seldom a single answer to this question. It depends very much on the situation of the lessee, the user of the equipment. One thing can be said with certainty. There is a far greater awareness today that most businesses make money by using equipment, not by owning it.

Equipment does not normally increase in value over time. It usually loses value. Even companies with ample cash resources must carefully evaluate every available financing alternative when acquiring new equipment. Cash tied up in fixed assets are no longer available to finance inventory and the profit producing activities of production, distribution and marketing. For this reason, many businesses seek to lease much of their equipment. They realize that owning a depreciating asset is not always the logical answer.

The practice of leasing is not confined to the business world. Universities, hospitals, government bodies, school boards and municipalities frequently lease the equipment they need to fulfill their respective missions. Cutbacks in public funding and increasing restraints on capital budgets present obvious difficulties in the acquisition of essential equipment. From computer hardware and software for administrative and educational uses to school buses, garbage trucks, police cars and sophisticated medical equipment, these are the kinds of essential equipment leased by public sector bodies. The federal and provincial governments too are major lessees of a wide range of equipment.


Source: Adapted from Canada Leasing Review published by Asset Finance & Leasing Digest (a Euromoney publication) in association with CFLA, April 1995

Clarity Leasing is a privately held equipment finance firm that specializes in alleviating the capital restrictions on growing companies.


On May 30th, 2011, posted in: Clarity Leasing | Blog by Tags: , ,