Our Blog

Competitive Advantage: Avoid Equipment Obsolescence

Competitive Advantage: Avoid Equipment Obsolescence

1/20/2020


“Disruptive” seems to be the business buzzword as we reflect on the last decade. Almost every industry has experienced unprecedented evolution from business operations, production, customer service to research and development. Technology has changed the way we do business today, and it won’t remain stagnant. Successful companies look for ways to apply technology in new and unique ways, disrupting “how it’s always been done.”
 
Here’s one example: By 2027, big data market revenues for software and services are forecasted to reach $103 billion (Forbes). Companies that don’t embrace change will lose their competitive advantage and could risk leaving revenue on the table, or even worse, shut down entirely, according to a study by Accenture. The only way for clients to stay on the cutting edge is by staying current, and that means new equipment and technologies.
 
Roles like finance, operations and IT often invest significant time in planning these acquisitions to meet their organization’s changing needs. A key decision when acquiring this new equipment is the method of financing. One of the most beneficial types of financing for technology-based equipment is a Fair Market Value (FMV) lease.
 

6 Reasons Why Organizations use FMV Leasing to Avoid Equipment Obsolescence


1) Flexible End-of-Lease Options

An FMV lease allows companies to utilize the equipment for a designated number of months with three end-of-lease options:

  1. Continue to lease the equipment

  2. Return the equipment to the lessor and upgrade to new equipment

  3. Purchase the equipment at the then-determined fair market value price

 

2) Operating Lease Accounting Treatment

FMV leases are categorized as operating leases for accounting purposes and true leases for tax purposes. Since the company does not own the equipment through an FMV lease, this allows them to deduct monthly payments as a rental expense against their income tax obligations.

 

3) Spend Less

FMV leases are often the most affordable lease structure. Instead of paying 100% on day one through a cash-based purchase, costs are spread out across the useful life of the asset. At First American, lessees typically pay 85-90% of the total equipment cost over the course of the lease, with a residual insertion that leads to a negative implied interest rate.

 

4) Gain Predictability

With cash-based purchases, companies put themselves at risk of not having enough cash on hand for day-to-day business expenses, such as unpredictable growth that could lead to increased wage costs or employee headcount. FMV leasing offers the ability to avoid sudden cash fluctuations and offers fixed, predictable payments.

 

5) Acquire Now, Decide Term Later 

The company is in control with FMV leasing. FMV lease terms typically range from 12 to 60 months. Upon end of lease, clients do not need to return all of the equipment. They can return some, purchase some, or continue to lease some. This type of lease offers the ability to decide at the end of the lease term, as evolving technology can be unpredictable.
 

6) Experience Tax Benefits 

Payments on FMV leases are fully tax deductible, since the lessee is renting the equipment as a monthly lease expense.
 

Bottom Line

All organizations rely on the latest technology and equipment to run their businesses and stay competitive. An FMV lease from First American gives you low monthly payments and a range of options to keep your company up to date with the equipment you need.

 

Comments
Blog post currently doesn't have any comments.

Follow Us

First American Commercial Bancorp, Inc. is a wholly-owned subsidiary of City National Bank. Deposit products and services are offered by City National Bank Member FDIC. City National Bank is a subsidiary of Royal Bank of Canada. “First American Equipment Finance” is the trade name for certain equipment leasing and finance businesses of First American Commercial Bancorp, Inc. and its subsidiaries. Equipment financing transactions are provided in Canada by FA Equipment Finance, Inc. For California clients: Loans made or arranged pursuant to a California Finance Lenders Law license. All transactions are subject to credit approval. Some restrictions may apply. All trademarks are the property of their respective owners.

© 2021 First American Equipment Finance. All rights reserved.

Top