For quite some time only a few savvy American business owners and entrepreneurs had used car leasing as standard operating procedure. In the past decade the business community adopted vehicle leases more readily, thanks to sharp accountants and consultants who have pointed their clients in the right direction.

LEASING ADVANTAGES

Cash Flow

A surefire way to make a business loan underwriter groan is to list a car on a business plan as a prospective asset to be acquired. Auto dealerships that offer in-house financing do not usually cater to businesses, so unless a company has ample cash reserves to drive the vehicle off the lot without financing, leasing is their best option. Additionally, the monthly payments on a lease agreement are also substantially lower than for a financed purchase, thus placing less strain on cash flow and reserves. 

Many auto dealerships have special lease programs that cater to their business clientele, including the capital cost reduction payment. Under this program, which is similar to a down payment, a business owner can negotiate the amount of the initial payment, as well as the overall impact on the value of the lease contract.

Tax Benefits

1 - The sales tax on a new vehicle purchase can be excruciating. On a leased vehicle, the sales tax levied isn't calculated on total value;  rather it is based on the lesser value of the contract.

 
2 - If a leased vehicle is used entirely for business purposes, the lease payment and all costs of its use can generally be deducted as business expenses.

3 - Depreciation of a leased vehicle as a business asset is more advantageous than with a purchased one. The allowable depreciation amounts for tax deduction purposes are usually higher for leased vehicles. Moreover, buyers of purchased vehicles basically end up paying for depreciation upfront, while leaseholders pay for it gradually.

Keeping Up Appearances

A vehicle put into service for the use of a company needs to be reliable. The last thing a business owner needs is to worry about whether a clunker will break down on the way to an important meeting, or worse yet with a client onboard. Leased cars are new and covered by a comprehensive manufacturer's warranty. 

The common term of a new vehicle lease agreement lasts for the lease duration. This means that a business owner does not have to worry about expensive repairs, and thus truly achieves peace of mind in terms of transportation.  Because leases generally run 2-3 years, the business owner effectively has a new car (with a new design and feel) continuously.

OTHER LEASING CONSIDERATIONS

Long Term Asset Depreciation

Purchasing a company car eventually adds an asset to the company. After more than five years, vehicle annual depreciation rates are sharply lower. Unlike a leased asset, a vehicle that is owned outright by your company can be easily converted into cash if needed.  Once the loan is paid off, insurance for the car’s replacement cost could be dropped, thereby lowering the monthly premium.

 
Contractual Obligations

Should your business fall into hard times, there may be some hefty early termination fees involved with breaking a vehicle lease. Avoiding early contract termination should be the focus of every business owner who decides to lease a company car. Other obligations to keep in mind include going above the allowed mileage, or excessive wear-and-tear.

In the final analysis, leasing a car for business purposes makes solid financial sense, as long as you take all factors into consideration!

Gina Hamilton is a credit counselor and also contributes content for insurance comparison sites. She suggests you compare auto insurance rates at Kanetix, an online site with information and quotes for U.S. and Canadian health and life insurance as well.