Imagine your fledgling construction company and the sudden need for a large piece of digging equipment, but you don't have $300,000 cash and the banks won't loan you any money for a long term.
Leasing might be a viable alternative that will give you a chance to use the equipment, make some money and apply the money toward the leasing payment until such time as you can buy the digger outright.That scenario came Wednesday in the Utah Power & Light Co. Auditorium during a seminar on leasing vs. equipment ownership sponsored by the Small Business Council of the Salt Lake Area Chamber of Commerce.
The speakers were Scott W. Pickett, a certified public accountant and tax manager for Coopers and Lybrand, and David R. Player, president, and David P. Larson, vice president of Delta Financial Group, an equipment leasing firm.
Larson said businessmen and women recognize it is the use of the equipment, not the ownership, that is important in producing jobs and profits. "They recognize that in growing companies, more income can be generated by obtaining the use of equipment today than by waiting to own it tomorrow."
Leasing offers business entities the opportunity to acquire the use of the equipment they need to compete in today's world and to take advantage of tomorrow's opportunities," Larson said.
He said the leasing industry was created to fill a need of providing items to businessmen who don't have to worry about coming up with large amounts of money. Larson said a shortage of capital investment money in the United States has become more acute as American businesses try to compete with foreign companies and are forced to modernize to keep up.
"This calls for large capital expenditures in new plants and equipment which must be financed by a combination of corporate debt and equity. For many, especially the small to moderate-sized companies, equity capital has been both scarce and expensive, and as a result, businessmen have had to develop more creative ways to build debt financing on their limited equity," Larson said.
Each year, he said, more businessmen are turning to equipment leasing as a means to acquire financing without heavy cash investment or bank balances, restrictive loan agreements or dilution of equity. "Leasing is flexible, in that it can be obtained on a fixed or floating rate or term," Larson said.
He said leasing is not a substitute for bank or other conventional types of credit, but it may be an important supplement. "It is not a solution for a company with incurable financial ills since standard credit requirements will apply. Leasing is an effective way to finance growth of an expanding company without overtaxing existing credit lines or diluting owner's equity," Larson said.