Introduction – What is a Lease?
A lease is an agreement that the lessee, or business owner(s), agree to pay the lessor, the leasing company or manufacturer, to have use of the equipment for a specified period of time. A lease payment is recorded on the center’s books as a rental payment similar to a rent payment on a building lease. Leasing enables center owners to preserve their working capital as an alternative to purchasing the equipment since a typical lease requires a relatively small upfront deposit. Centers profit from a lease transaction if the center generates revenue in excess of the monthly lease payment, thus generating positive cash flow from the use of the equipment. Lease repayment terms range from 12 to 60 months. Consequently, items that do not have a useful life of at least 12 months, such as inventory, should never be included in a lease agreement.
A typical lease uses the fitness and non-fitness equipment being financed as the lease collateral. Center owners need strength equipment, cardio equipment, lockers, security systems, computer systems, software, flooring and signage to build a new fitness center and to expand their existing business. Consequently, all of these items can be included in a lease since they are required to conduct business in our industry.
What Are The Main Benefits of Leasing?
1. Conserve Working Capital – This is unquestionably the biggest benefit of leasing. If you have significant liquid assets, leasing may not be for you! On the other hand, if you have limited liquid assets, preserving cash by leasing your equipment may be the difference between success and failure.
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