Purchasing Options

Financing Options

Tinius Olsen offers several different ways to help you with your purchase, which are outlined below.

Cash Purchase:
Advantages:

• Normally lowest cost method of acquiring equipment when funds are available
• Service fees, finance charges, and interest expense are eliminated for buyer
• Customer ownership is immediate, and the customer shows equipment cost on the balance sheet subject to depreciation methods used.

Disadvantages:

• Working capital (cash), which could be used elsewhere, is reduced
• Outright purchase converts a liquid asset (cash) into a fixed asset (equipment), thus weakening the customer’s “current” ratio.

Operating Lease:
Advantages:

• Encourages a more orderly planned equipment replacement cycle, before maintenance cost become excessive
• Eliminates used equipment disposal problems for the user
• Allows obtaining efficient, cost-saving equipment that cannot be purchased with fixed operating budgets
• It is easier to obtain an approval for equipment lease rather than a
  capital expenditure.
• Leasing can free working capital for other investments, while not affecting the customer’s borrowing power or credit line
• Lease payments may provide a tax deductible business expense, reducing tax liabilities
• Gives opportunity to reduce operating expenses by replacing over-aged equipment without a large capital outlay, the establishment of realistic replacement schedules, and standardization
• Leasing simplifies budgeting, bookkeeping, and accounting by greatly reducing paperwork and administrative requirements.

$1.00 Purchase Option (Financing):

• Same great advantage as the operating lease – limited cash outlay.
• Provides the depreciation and tax benefits of a cash purchase.

Short Term Rental:
Advantages:

• Many of the same advantages of a lease program and with the following distinguishing characteristics:
• Flexible contract periods – from 6 to 12 months
• Rental can include maintenance provisions
• Provides inexpensive means to try out a new piece of equipment, without long-term commitment.

Disadvantage:

• Economic benefits diminish as the rental period extends.

*Individual structures are subject to final credit approval.

Reasons to Finance or Lease

1. Conversion of Capital:  when cash is conserved by financing or leasing, it can be used for other company needs (increasing inventories, expanding sales, etc…)
   
   
2. Conservation of Credit:  rental or lease is not a loan, which reduces line of credit.  Thus, leasing is a new credit source, with “tight money,” this is important.
   
   
3. Balance Sheet Effect:  if equipment is purchased with borrowed money, Liabilities are increased and Liquidity decreased.  If equipment is purchased with cash, fixed assets are increased and current assets are decreased… less liquidity again.
   
   
4. Impact on Statements:  an operating lease may have no direct effect on a balance sheet or current ratio because it is not considered a loan.  The entire lease payment is treated as an expense item (please check this with your accounting or tax experts).
   
   
5. Avoids Dilution of Ownership Equity:  it may be better to lease or rent the equipment than to dilute ownership in a company through
   equity financing.
   
   
6. Simplify Accounting:  leasing relieves the user of the responsibility of burdensome cost accounting records and eliminates equipment and depreciation controls.
   
   
7. AMT Considerations:  operating leases avoid the possibility of additional taxes due to depreciation, which is being claimed by the lessor.
   
   
8. Rental provides inexpensive means to try out a new piece of equipment without a long-term commitment.  In effect, it is a paid demonstration.
   
   
9. Planned Replacement Program:  leasing or renting often shields the user from technological obsolescence.  She/he can automatically upgrade the equipment with the latest model and attachments at regular intervals.  The planned replacement program provides for the optimum economic life of your equipment, keeping maintenance at a minimum.
   
   
10. Hedging against Inflation:  financing or leasing provides for payment over a long term.  Payments are made with tomorrow’s dollars, which may have less value than today’s.
    
    
11. Cost:  leasing is generally the lowest cost to use a piece of equipment for a designated period of time.  Payments are fixed for the term and can include maintenance costs.

Please call our Financial Services department for the current leasing rates.