Preserve Lines of Credit & Keep Short-Term Funds Free
Source: Paramount Press
A client’s story of why they chose leasing equipment instead of buying.
“A moderate-sized advertising firm, based in San Francisco, wanted to upgrade its servers and computer systems. The company was successful and profitable, but considered the technology upgrade a sizeable expense. Therefore, the company’s CFO, George Thompson, wanted to explore options that would allow the upgrade without reaping havoc with their working capital or existing lines of credit. Thompson commented, “Faced with an expense of $75,000, we would have had to use our existing credit line as well as a significant amount of our cash for the purchase. Our business fluctuates very rapidly and thus we hate to tie up short-term funds for long-term assets. Our line of credit helps us stabilize payroll and accounts payable, thus maintaining our quality business credit.”
The advertising firm decided instead to lease the new technology through Paramount Financial, of Phoenix, AZ (www.paramountfinancial.com). The firm’s cost-benefit evaluation focused on a key comparison: What would be the overall cost of purchasing the computers? The firm factored in terms such as credit-line interest, depreciation-driven tax write-offs and the type of liens that may be placed on their personal or business assets.
The firm also took into consideration the intangibles, such as the ease of doing business. Thompson stated, “Not only did Paramount manage the equipment order, freeing up valuable time for my IT staff, but the lease structure itself also preserved our ability to borrow from our bank for other corporate needs. Leasing ultimately cost the same amount over time,” said Thompson, “but it didn’t tie up capital or require us to put up any additional assets for collateral other than the computer systems,” which made leasing far more advantageous and appealing.
According to David Musselmann, president of Paramount Financial, “leasing is a great vehicle for the acquisition of most any capital equipment need. We assist most industries with their technology, heavy machinery, office furniture, vehicle or software needs, even if the cost is as little as $5,000. Leases traditionally cover 12 to 60 month periods and cover 100% of the equipment cost needed. More importantly, leasing accelerates tax benefits into a shorter period of time (compared to traditional bank financing or cash purchases) which frequently benefits our clients from a tax perspective.”
For more information about Paramount Financial visit: www.paramountfinancial.com