Do low interest rates make leasing superfluous?

3 March 2016

United Kingdom

Christian Sindel

Glory Global

Do Low Interest Rates Make Leasing Superfluous

Cutting interest rates, yet again the European Central Bank has stuck to its policy to flood the market with cheap money to counter the economic slump in the eurozone. Historically low interest rates over the past couple of years have made financing easier than ever. Or has it? It is true that costs for mortgages are at an all time low and small value consumer credits are booming but this is not the case for financing across the spectrum. Why?

The reason is simple: almost all leases are funded by a bank, and banks have become more cautious about lending money and extending credit lines as a result of recent financial turmoil. Having suffered from widespread credit defaults in the recent past, they now want more assurance than ever that a creditor can fulfil their payment obligations. This means that financially low performing companies, or companies with negative equity, often struggle to get the funds they need and new businesses with little or no financial history often find it impossible to close a financing agreement. Urgently needed investments are then put on hold, or worse cancelled.

So while banks can borrow money at historically low rates, companies continue to struggle. In addition to the restrictions imposed by the financial markets, there are good reasons why a business would want to avoid stretching its credit lines to the limit. Thus, more than ever before, businesses are looking for creative ways to meet their operational objectives without impacting their capital budget or tying up large amounts of cash.

As a result, alternative acquisition programmes are becoming increasingly popular - even within the banking sector. The advantages are clear:

• Matching cost with benefit – realise an immediate return on investment. In most cases, the savings associated with the implementation of new solutions more than offsets the monthly payment, which provides an immediate return on investment.
• Avoiding technology obsolescence – operating lease programmes allow businesses to take advantage of new equipment and technology on a regular basis.
• Operating expense vs. Capital budget – a variety of lease programmes, typically funded with operating budgets, eliminate the need for lengthy capital budget approvals.
• Off balance sheet financing – operating lease payments are treated as an expense and in a lot of cases are not recorded on the balance sheet. Lease payments are tax deductible and can improve several key metrics, including return on assets and efficiency ratios.
• Improving budget predictability – funding acquisitions with a monthly payment provides predictable cash flow and allows for easy charge-back to a branch or cost centre.
• Asset management – operating leases typically provide more flexibility in managing assets. At lease end, equipment may be retained for a short term extension, renewed for a longer period of time, purchased or returned to the lessor.
• Customised solutions – unlike a purchase, where payment is due up front, lease payments can be structured to help meet budget objectives.

To help our customers take advantage of these benefits with a one-stop shop,  Glory has built relationships with financial business partners enabling us to offer a variety of equipment lease programmes as an alternative to traditional capital investment. These programmes provide a cost effective alternative to outright purchase, reduce the effective cost of ownership and allow customers to realise an immediate return on investment (ROI) when implementing Glory cash technology solutions.

So in short: Leasing is alive and kicking and can bring immediate benefits to your business.
If you would like to discuss leasing options with us further please contact christian.sindel@fr.glory-global.com

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