7 Benefits of Equipment Lease Finance for Exporters
Equipment lease finance is a type of financing that allows exporters to acquire the equipment they need for their business without paying the full cost upfront. Instead, they pay a monthly fee to use the equipment for a fixed period of time, usually less than the equipment’s useful life. This way, they can preserve their cash flow, reduce their tax burden, and access the latest technology.
In this article, we will explore the benefits of equipment lease finance for exporters and how it can help them grow their business in the global market.
1. Lower upfront costs
One of the main advantages of equipment lease finance is that it reduces the initial investment required to purchase the equipment. Exporters can avoid paying a large lump sum or taking out a loan that may have high interest rates and strict repayment terms. Instead, they can spread the cost over a longer period of time and pay only for what they use.
2. Flexible terms and options
Equipment lease finance offers more flexibility than buying the equipment outright. Exporters can choose from different types of leases, such as operating leases, finance leases, or sale and leaseback arrangements, depending on their needs and preferences. They can also negotiate the duration, frequency, and amount of payments, as well as the option to renew, extend, or terminate the lease at the end of the term. Moreover, they can upgrade or exchange the equipment if their business needs change or new technology becomes available.
3. Tax benefits
Another benefit of equipment lease finance is that it can provide tax advantages for exporters. Depending on the type of lease and the country where they operate, exporters may be able to deduct the lease payments as an operating expense, reducing their taxable income and their tax liability. Alternatively, they may be able to claim depreciation and interest expenses on the leased equipment, increasing their tax deductions and lowering their tax bill.
4. Improved cash flow and working capital
Equipment lease finance can also improve the cash flow and working capital of exporters. By leasing the equipment instead of buying it, exporters can free up cash that they can use for other purposes, such as expanding their production capacity, hiring more staff, or investing in marketing and research. They can also avoid tying up their capital in assets that may depreciate or become obsolete over time. Furthermore, they can reduce their risk of equipment obsolescence and maintenance costs by transferring them to the lessor.
5. Competitive edge
Equipment lease finance can give exporters a competitive edge in the global market. By leasing the equipment they need, exporters can access the latest technology and innovation that can enhance their productivity, quality, and efficiency. They can also offer better products and services to their customers and meet their expectations and demands. Additionally, they can gain a reputation as a reliable and professional exporter that uses state-of-the-art equipment and follows best practices.
6. Easier financing
Equipment lease finance can also make it easier for exporters to obtain financing for their business. Since the equipment serves as collateral for the lease, exporters do not need to provide additional security or guarantees to the lessor. This can simplify the application process and reduce the documentation and paperwork required. Moreover, exporters may be able to access more favorable terms and rates than those offered by banks or other lenders.
7. Expert support
Finally, equipment lease finance can provide expert support for exporters. By leasing the equipment from a reputable and experienced lessor, exporters can benefit from their knowledge and expertise in selecting, installing, operating, and maintaining the equipment. They can also receive technical assistance and advice from the lessor in case of any issues or problems with the equipment. Additionally, they can leverage the lessor’s network and connections in the industry and the market.
Equipment lease finance is a viable option for exporters who want to acquire the equipment they need for their business without paying the full cost upfront. It offers several benefits, such as lower upfront costs, flexible terms and options, tax benefits, improved cash flow and working capital, competitive edge, easier financing, and expert support. By choosing equipment lease finance, exporters can optimize their resources, enhance their performance, and grow their business in the global market.
Global Demand for Equipment Lease Finance
Equipment lease finance is a form of financing that allows businesses to acquire equipment and software without paying the full upfront cost. Instead, they pay a fixed monthly fee to use the equipment for a specified period, usually with an option to purchase it at the end of the lease term. Equipment lease finance can offer several benefits to businesses, such as preserving cash flow, reducing tax liability, and accessing the latest technology.
According to a report by Grand View Research, the global finance lease market size was valued at USD 210.99 billion in 2021 and is expected to expand at a compound annual growth rate (CAGR) of 5.1% from 2022 to 2030 . The growth can be attributed to the rising demand for heavy machinery, equipment, and other critical assets from players operating in sectors such as healthcare, construction, and IT & telecom. A rapid shift from an agricultural-based economy to a manufacturing-based economy in developing nations is also expected to drive the demand for financial leasing.
Equipment Verticals and Industries with High Financing Activity
Among the different types of equipment and software that businesses can acquire through leasing, some verticals and industries have higher financing activity than others. Based on a survey conducted by the Equipment Leasing & Finance Foundation, medical equipment was the most likely to be financed, with an estimated 75% of acquisition volume secured through a lease, loan, or line of credit . Other verticals with relatively high financing activity include other industrial equipment (69%) and construction machinery (67%).
Among the end-user industries, professional services firms were most likely to use financing (70%), followed by construction (67%), and healthcare (64%) businesses . In all six industries surveyed, leasing remains the most popular method of finance used, with secured loans being the second-preferred option in most cases.
References:
http://www.aasb.gov.au/admin/file/content105/c9/AASB117_07-04_COMPjun09_01-10.pdf
http://pages.stern.nyu.edu/~adamodar/pdfiles/ovhds/capstr.pdf
http://rdcohen.50megs.com/genOCS.pdf
https://www.grandviewresearch.com/industry-analysis/finance-lease-market
https://www.leasefoundation.org/wp-content/uploads/2022/10/2022-Horizon-Report-Fact-Sheet.pdf
https://www.export.gov/article?id=Leasing
https://www.trade.gov/knowledge-product/leasing-equipment
https://www.equipmentfa.com/blogs/3108/the-benefits-of-equipment-leasing-for-exporters
https://www.exim.gov/what-we-do/financing-solutions/leasing
