Hi,
First, you should know there are 3 different types of leases: $1 buyout,
10% buyout and Fair Market Value buyout. The only one that you can use
to deduct the entire payment as an expense each month is the Fair Market
Value buyout. Both of the others, you still have to depreciate all the
equipment because the IRS knows you are basically buying it.
We always did $1 buyout leases, 24 months with $0 up front, on all of
our CPE when we were growing so quickly. The banks were much harder to
deal with, and often wanted other assets in addition to the equipment we
were buying. They will often attach themselves to your business (for
example, they get claim on all your A/R if you miss a payment, etc.).
They also sometimes want your checking account to be with them so they
have some security that way.
Leasing companies are easy. They charge higher rates, but there are also
tons of them out there, so it's easy to find new companies to get leases
from... banks often only want to do 1-2 deals and then they are done. At
one point, I think we had over 20 leases with about 8 different leasing
companies. The trick is to buy enough equipment at a time that you get
the quantity discount to justify the interest rate, so it comes out the
same. We were buying 250 or 500 packs of CPE each lease ($100,000
worth). Get 2 or 3 leasing quotes from different companies, and then
play them against each other. You can often save some money that way,
because they all want the business.
The thing I discovered over the 15+ years of leasing was we reached a
key point in the business where we could just start buying our CPE. We
had two leases pay off within a couple months of each other, and we had
the cash flow, so we started buying 100 CPE each month. It was a very
critical point in the business growth, and I seemed to have timed it
perfectly, because we never ran out of cash (in fact, we always had at
least 6 months worth of capital to cover our expenses).
Things to watch out for with leasing companies:
(1) Automatic renewals after the lease term is up. Some companies will
just keep billing you the monthly payment if you don't notify them 90
days before the term of the lease is up.
(2) Misc monthly fees and "payoff" numbers that are higher than quoted, etc.
(3) Sales tax. Make sure if they are collecting the sales tax on the
purchase each month that they are actually reporting and paying it to
your state.
(4) The worst company I ever dealt with in those 15+ years was Balboa
Capital. We did over 50 leases during that time, and Balboa Capital was
the only one we ever had a problem with. They have very fine print in
their contracts, and they are very sneaky about what they try and get
away with.
Good luck. It's the fastest way to grow a business and still stay
profitable each month. :)
Travis
On 1/11/2015 8:34 AM, Darin Steffl wrote:
Hey guys,
As many of you have probably done, we're weighing the benefits and
difficulties of lease-to-own and bank loans and trying to find what
will be best for future growth. What I'm looking for is what each of
you decide to use to fund growth and why you choose leasing vs getting
a loan through a bank. Lease to own is basically like a bank loan but
usually at a higher interest rate but they may be more inclined to
lend than a bank for example.
I understand in our case that we can receive a better interest rate
through a local bank but they make it a bit harder to borrow. I have
not worked with a leasing company yet but from the sounds of it, they
may be more likely to lend money for a successfully growing WISP. If
you could leave a review from any lenders you have worked with, that
would be great.
I'm not an accountant or tax person but with leasing, the payments
should be 100% tax deductible where if we purchased the equipment
outright, we have to depreciate it over it's life (3-5 years usually)
so we would pay more in taxes every year by purchasing.
To sum it up, I'm looking for your thoughts on leasing-to-own vs.
getting a bank loan and purchasing equipment and your favorite vendors
you've worked with. Thank you all
--
Darin Steffl
Minnesota WiFi
www.mnwifi.com <http://www.mnwifi.com/>
507-634-WiFi
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