Rent A Booth: Leasing a Spraybooth is an Option
Don't want to spend all that money up front for a new spraybooth? You're not alone. Many shop owners have begun leasing instead of buying.
By Jennifer A. Mintz
7/1/1998
Thinking about a new spraybooth for your body
shop? If so, keep in mind that how you pay is just as important
as what you buy. Also keep in mind that you don't have to buy.
Several options are available: bank financing,
credit lines, cash purchases or leasing. And budgets, accounting
methods and revenue projections are all important factors in determining
what method of financing is best. Perhaps the most important factor,
however, is how the acquisition cost of the equipment (both initial
and over time) will impact your shop's working capital base.
Preserving working capital is one of the more
prevalent reasons body shops of all sizes utilize leasing to acquire
"essential use" equipment, such as lifts, spraybooths,
pulling equipment and welders. Leasing permits repayment of the
cost of equipment to occur over time - allowing the equipment
to generate the revenue necessary for these payments - and keeps
working capital (and bank credit lines) available for other business expenses.
Other business advantages can also be realized
through leasing, such as:
- Use of equipment. Leasing offers immediate use of the equipment
for an agreed-upon low monthly payment rather than a large, upfront
cash outlay.
- Reduced risk of technological obsolescence. At the end of
the lease term, the lessee is not "stuck" with outdated
equipment.
- Tax advantages. Lease payments may be fully tax deductible
as a business expense and may help businesses avoid Alternative
Minimum Tax (AMT) Liability. Check with your accountant.
- Preservation of bank credit lines. Leasing won't tie up existing
lines of credit; they remain intact to fuel growth or to meet
other operating expenses.
- Flexible payment options and longer payment terms. Payments
can be suited to cash flow or budgetary requirements. Lease terms
can range from 12 to 84 months with flexible renewal options.
- Flexible end-of-lease purchase or renewal options. Options
may include purchasing the equipment, upgrading to new equipment
or continuing to lease at a substantial savings.
- Preservation of working capital. Low initial costs and flexible
payment schedules that can be tailored to specific cash flow requirements
minimize the drain on a business' working capital.
Leasing Questions
Some frequently asked questions about leasing include:
Is a down payment required? Most lessors require a security deposit,
usually equal to one or two months lease payment. This differs
from a down payment in that the amount is typically much smaller.
At lease end, the deposit can be applied to the purchase price
of the equipment or returned if no other payments are due.
How are lease payments determined? The monthly payment is based
on the term of the lease, cost of the equipment and the type of
leasing plan the lessee chooses. The initial term of a lease runs
from 12 to 84 months.
Can the lease be canceled? Usually no, but equipment can be
traded in for new leased equipment before the expiration of the
initial term.
What about insurance? Insurance is required for any type of leased
equipment. Some lessors offer insurance as a customer convenience,
or it can be provided by the lessee's insurance company.
From a tax perspective, how does the lessee account for the lease?
Tax treatments vary by type of lease, so consult your accountant
on what's best for your business.
To Lease or Not to Lease
If you're in the market for a new spraybooth, the many advantages
of leasing are worth looking into, especially if you don't have
that large sum of money needed upfront to purchase one. Preserving
working capital is one of the biggest reasons shop owners choose
leasing to acquire large-ticket equipment.
Several other financing options are also available. To make sure
you choose the right one, check around, talk to other shop owners
and visit your local bank before your hand over any signed checks.
Remember, how you pay is just as imporant as what you buy.
Writer Jennifer A. Mintz is national sales manager for the
Commercial and Industrial Division of Advanta Business Services
in Voorhees, N.J. Mintz can be reached at (800) 255-0022, ext.
3524.