Stimulus Perks For Equipment Financing13 Nov, 2008 By: Scott Sullivan imageSource
Stimulus Perks For Equipment Financing
Additional depreciation benefits
Signed by President Bush on Feb. 13, 2008,
the Economic Stimulus Act of 2008 is similar to the stimulus provisions enacted
to bolster the national economy as it struggled to regain its footing after
Sept. 11, 2001.
One of the key provisions of the 2008 act allows companies acquiring capital
assets such as office furniture and manufacturing equipment to take an
additional 50 percent first-year depreciation for tax purposes.
More specifically, this provision means companies purchasing new equipment
before year’s end are eligible for the regular modified accelerated cost recover
system (MACRS) depreciation they typically use to depreciate new equipment, as
well as an additional first-year depreciation of 50 percent.
Basic business principals show the postponement of asset acquisition can slow
economic growth. That’s why this additional depreciation is so helpful to
businesses in both cost savings and growth stimulation.
Businesses wishing to lease equipment can also take advantage of this tax
change because the benefit passes through to the leasing company, which in turn
can offer lower financing rates to lessees.
That isn’t the only temporary tax change businesses can find advantageous
With Section 179, businesses can ease tax burden
Another change increases the amount of money small businesses can write off
on equipment purchased before Jan. 1, 2009.
It comes under IRS Section 179 and allows companies that purchase up to
$800,000 (up from $510,000) in capital equipment to write off $250,000 (up from
$128,000) of that investment in equipment purchased through the end of the year.
The effect of both of these provisions is to lower the stated profits on a
company’s income statement, thereby lowering the company’s stated tax burden.
With both of these provisions applicable only to equipment purchased this
year, it makes smart business sense for office furniture dealers and
manufacturers to educate customers on the benefits of purchasing equipment they
desire now rather than waiting.
The ability to offer a finance option as part of the sales process can
provide a strategic and competitive advantage for both the dealer and the
customer, particularly during an economic downturn.
Office equipment and solutions dealers, as well as furniture dealers are
always looking for ways to close more deals and, ultimately, add to the bottom
line. Increasing sales is always part of the strategy. Even so, companies often
overlook a simple method of accomplishing this objective – making it easier for
the customer to buy.
With less money due up-front, equipment leasing helps customers conserve cash
for their revenue-generating projects. Leasing also makes it possible for
customers to acquire the equipment they need now while postponing the ultimate
purchase decision until the end of the lease. This all goes toward improved
customer relations by providing a one-stop shopping and financing option.
Everyone knows the importance of cash-flow management, especially during an
economic slowdown. Leasing is also beneficial in this regard by giving customers
another option when they want to acquire furniture based on their operating, not
capital, budget. This is a tremendous benefit since the lease payments can be
closely matched with revenue generation. Leasing also helps businesses present a
better balance sheet because lease payments show up as an expense versus a debt
and allow for improved management of tax liability.
Benefits add up
When considering new tools to maximize profits, leasing is one option with
many beneficial uses. Here are a few benefits your customers can realize from
leasing office furniture and equipment:
Tax treatment - The IRS does not consider certain leases to be
purchases, but rather tax-deductible overhead expenses. Therefore, your
customers can deduct the lease payments from income.
100 percent financing - Since a lease often does not require a down
payment, it is equivalent to 100 percent financing.
Immediate write-off of the dollars spent - With leasing, payments are
treated as expenses on the income statement, so equipment does not have to be
depreciated over an extended term.
Flexibility – As businesses grow and needs change, the lessee may be
able to add or upgrade equipment at any point during the lease term.
Asset management - A lease provides the use of equipment for specific
periods of time at fixed payments. The leasing company assumes and manages the
risk of equipment ownership. At the end of the lease, if the customer elects to
return the equipment, the leasing company is responsible for the disposition of
Improved cash forecasting - When your customers lease, they can
accurately forecast the cash requirements for equipment since they know the
amount and number of lease payments required.
Flexible end of term options - There are typically three flexible
options at the end of a term. The lessee can either return the equipment,
purchase the equipment from the leasing company or extend the lease for an
additional period of time.
Tax benefits - Leasing companies can pass the tax benefits of
ownership on to the businesses in the form of lower monthly payments.
Leasing for dealers, too
Offering a flexible finance program can help increase sales and make dealers
and manufacturers more competitive. But just as a financing helps boost your
customers’ buying power, it can also help you acquire the equipment you need to
Many business owners may not realize it, but just about any type of equipment
can be leased. That means everything from computers, copiers and fax machines to
manufacturing and assembly machinery to commercial vehicles, and so much more.
And, in many cases, “soft” costs such as delivery, service, training and support
can be rolled into the finance package, so you pay one predictable monthly
payment for all of your equipment needs.
One size does not fit all
Perhaps the most important step in the implementation of these practices is
seeking the guidance of an experienced and reliable financing partner. There are
a number of important things to consider when making this choice.
These include whether the finance company knows your industry and business
needs, is flexible and willing to work with your management team and is quick in
its approval of credit applications, among other factors.
One thing is certain. By offering both an equipment finance option as well as
an explanation of the benefits of the Economic Stimulus Act of 2008, office
dealers and manufacturers can make it easier to improve their business outcomes
– and improve them now.