If the lessee cannot use depreciation to currently offset taxable income and taxes, these tax benefits may be lost forever or the value significantly reduced if the lessee owns rather than leases. Furthermore, the overall after-tax cash flow on a present value basis is often more attractive in a lease. FLOW - Within certain parameters, payment schedules can be designed to coincide with earnings generated from equipment use, with season activity patterns, or with projected business growth. Because the timing of lease payments can be arranged to track normal business cycles, leasing offers flexibility that may not be available with other financing methods. Because lease terms can be structured for much of the useful life of equipment, a lease contract often continues well beyond normally available loan terms.
Documentation is simpler and more flexible than other sources of capital such as debt and equity.
Level payments allow for the payment of the equipment out of earnings rather than equity capital. This conserves working capital for other uses. However, a lease permits retention of capital which can be utilized elsewhere in the lessee's business. Additional earnings can be generated from this retained capital, making the overall cost of leasing even more attractive. A discounted cash flow analysis of after-tax receipts and disbursements should be employed to evaluate the aforementioned factors.