As plastics processors ride the wave of recent record growth to contemplate new technology and machinery for their businesses, they should also consider upcoming changes to lease accounting rules, according to a new article in Plastics Technology.
These new rules, released in 2016 by the U.S. Financial Accounting Standards Board, take effect for public companies December 2018, and for private companies in December 2019, writes Toni Larson, senior vice president of industrial equipment for Key Equipment Finance.
Leasing benefits remain strong
The new regulations require that a portion of operating leases appear on every business balance sheet. Initially, some observers thought the new accounting rules might threaten revenue or profitability. In reality, the final rules impose less stringency than anticipated, and the benefits of leasing remain strong, including for industrial and manufacturing businesses, which account for 5% of equipment financing new business volume in the United States, according to the 2018 Survey of Equipment Finance Activity.
This means “business as usual” has shifted—but only slightly—and mainly from an accounting perspective.
Net benefits of equipment leasing
Leasing continues to be a judicious business decision, offering a host of advantages that remain unchanged. Here’s a breakdown of the benefits of financing:
Alternative capital source
- Preservation of cash and lines of credit
- Fixed rate vs. a floating rate revolving line of credit
Cash flow savings
- 100% financing
- Financing for training and installation costs
- Skip or seasonal payments
- Lower monthly payments with flexible end of lease options
- Lease payments considered an expense on your income tax return
- Unusable MACRS benefit may be traded for lower payments
- Payment/lease structures to fit varying business needs
- Simplified add-ons / upgrades
- Reduced obsolescence risk
To learn more about changes in operating leases, frequently asked questions, and actions to take: