People ask me all the time “what is the best type of payment structure for my business, leasing or financing?” And I always answer with another question: “what is your company goal in wanting this transaction?” 

Here are the most common scenarios/answers, and the general type of payment structure that works best:

“I Want Monthly Payments and to Use Section 179”

This is far and away the most common answer – the company wants to buy equipment now, and for budgetary/cash-flow reasons, wishes to make monthly payments instead of paying cash up front. In this case, a straight equipment financing agreement (EFA) will suffice nicely. 

In this scenario, the equipment is on the balance sheet as an asset, as the borrowing company is the owner of the equipment (with the lender holding a lien until the loan is paid off), and a full Section 179 deduction can be taken right away.

Now, certain leases also accomplish “monthly payments and Section 179” but they are usually only employed at the lender’s discretion – maybe the lender only writes leases for some reason and sees no reason to change. 

So yes, wanting monthly payments = EFA. Simple, effective, and good for small to mid-sized companies because it allows for a full Section 179 Deduction.

I Do Not Want the Equipment on My Balance Sheet 

Ok, NOW we’re getting into another area. In this case, an EFA (or something like a $1 / 10% purchase option lease) will NOT do. You would need an Operating Lease. 

In an accounting sense, this views the equipment as an expense, and not an asset. The lease payments for Operating Leases are usually tax-deductible expenses, but a Section 179 deduction is not possible (because the lessor/borrower does not own the equipment).  

It’s usually larger companies that want this, as the off-balance sheet/expense aspects are attractive (to give one example why, many companies do not need board approval for expenses, but do for capital expenditures, making leasing an efficient way to acquire needed equipment).  

I Always Want New-ish Equipment Without Maintenance Costs

This is another popular scenario that a FMV Lease works well for. Perhaps a company relies on equipment where “the latest and greatest” gives them a competitive advantage. Or the equipment is such that they’d rather not deal with age-related maintenance issues. 

For equipment like this, the company would rather they never actually “own it”, instead choosing to lease it for several years, turn it in, and then lease a new one.

In this scenario, the company always has a monthly payment, but since they always have a “new” model, maintenance costs are likely reduced, and they always have the latest features. Consumers do this with automobiles all the time.

Wrapping Up

Ok, there are some of the main reasons a company would want a monthly payment option. As you can see, the reasons vary wildly (from simple “monthly payments make sense to our budget” to more complicated off-balance-sheet needs), but regardless of the reason, there is a finance/lease structure that can satisfy it. 

In fact, take a look at Crest Capital’s different lease and loan offerings with explanations.

Of course, none of the above is to be considered definitive tax or business advice. Consult your accountant for further information.  

When the clock strikes midnight on 12/31/2019, that’s it – Section 179 for 2019 is done. Over. Finished. 

And you don’t want to miss it. Trust me on this – here’s why:

The US Government has given small and medium businesses a HUGE gift with Section 179. It allows you to deduct the entire purchase price of almost all equipment purchases, up to a million dollars.

In other words, if you buy a new machine, or a delivery truck, or almost anything else used in business, you can deduct the entire cost from your 2019 taxes. Depending upon your tax rate, that’s like getting an instant 25%-35% discount on your purchase. That’s sweet. Want to see how much you can save? Check out this Section 179 Calculator.

Section 179 Financing Makes it Even Sweeter

Even better is when you finance your purchase. Because this does two things:

First, it gives you the funds to buy the equipment now and take advantage of Section 179. We have but a few weeks left in 2019, and financing the equipment allows you to get it before the 12/31 deadline.

Second, the money you save on your taxes (again, depending on your rate, it’s like you instantly get 25-35% of the purchase price as raw, keep-able dollars) will FAR EXCEED the payments you make. This can make 2019’s profit number soar, and also have a profound effect on 2020’s bottom line as well.

We have customers who finance a few items, and the money they save on their taxes covers their payments for as many as 18-24 months. That’s like getting the equipment for free for a year or two.  Plus, you are using the equipment to further increase your revenues, right? So that’s even more advantageous to your bottom line.

I know I chirp about Section 179 a lot, but seriously, it’s such a big deal that it astounds me when businesses do not take advantage of it every single year.  Make sure you’re not left out, and if I can help in any way, let me know!