Photo Credit to John Miles: https://creativecommons.org/licenses/by-nc-sa/2.0/legalcode
The decision on whether to purchase or lease your fleet vehicles can be a challenge. There are pros and cons to either approach, and here we’re going to take a look at some of the ways your organization can benefit economically from leasing its vehicles:
- Improved Cash-flow: Purchasing vehicles requires a major outlay of cash that might otherwise be used to grow your organization. A finance-lease agreement allows you to free up significant amounts of cash for re-investment, and reduces your vehicle costs to a monthly operating expense. For example, if the up-front cost of purchasing a vehicle is $25,000, that same amount would support the financing of three vehicles, each with a monthly payment of around $550. This also allows you to keep your credit lines clear and to avoid tying up major capital in vehicles, which are depreciating assets.
- Flexibility: With a finance/open-end lease you can tailor the agreement for each vehicle based on its projected use. This allows you to pay only for the part of the vehicle that you use and not the whole vehicle. For example, if you have a vehicle expected to travel 75,000 miles in 36 months and another in 48 months, we can structure the payments to accommodate these individual terms.
- Tax Benefits: Leasing vehicles can provide significant tax benefits, which vary depending on the type of lease. The most common type of lease for both non-profit and commercial organizations is called an operating lease. This agreement allows you to treat lease payments as an expense on the income statement, which provides significant tax benefits without the full lease obligation affecting the balance sheet.
Overall, there are many excellent reasons for deciding to lease your organization’s vehicles rather than purchase them outright. It is important that you take the time to sit down with your professional tax advisor and a fleet financing expert to review the various options and determine which best fits your organization's needs.