How the New Tax Law Affects Equipment Leasing for Small- and Medium-Sized Businesses

Most provisions of the new tax law that was passed in December 2017 went into effect on January 1, 2018. Tax law being a complicated subject, it’s not surprising that many small- and medium-sized businesses (SMBs) are still learning about the specifics of the legislation. In fact, according to an industry survey, 50 percent of small business owners are “not familiar” with the tax law and how it affects them. Among its wide-ranging effects is the impact it will have on business equipment leasing.

What You Need to Know About the New Tax Law and Equipment Leasing

It has been much publicized that the new tax law lowers the corporate tax rate from 35 percent to 21 percent. But, few small business owners actually pay corporate taxes. What does benefit LLCs, S corporations, and sole proprietorships in terms of how income is dealt with is a new 20 percent deduction for the taxable income that “passes through” and is taxed as personal income.

However, what may have an even bigger effect on small businesses is how the new tax law impacts the acquisition of assets. If your company is looking to lease computers, furniture, software, and the other assets you need to operate, we see the new tax law (in particular, Section 179) as having two primary provisions you should be aware of. The first is that at the time you acquire an asset, you can now expense up to 100 percent of the cost. And, the write-off for equipment has doubled from $500,000 to $1,000,000.

Previously, companies would spread out the expense of equipment over, say, five years. Now you are allowed to take that expense in the first year. If your business is profitable, this upfront “hit” can be very beneficial as the depreciation expense lowers your taxable income, allowing you to pay less tax and keep more of your money. What you are able to do in a leasing scenario is even better. You can still make your payments over time even if you take the expense and lower your tax obligation on Day 1.

The second key advantage of the new tax law is that the provision above applies to both new and used assets. In the past, you only received benefits for the acquisition of brand new equipment, software, etc. Now used assets are covered as well. In fact, while they don’t occur often in our business, even sale/leaseback transactions can be treated this way.

The Bottom Line for Your Business Leasing

The implementation of the new tax law puts us in the coveted position of being the bearers of this very positive news! And, we’re eager to spread the word to our clients.

Ultimately, the legislation is advantageous to SMBs when it comes to acquiring assets in general. And, it’s important to remember that if that acquisition is through a capital lease, you get the best of both worlds: taking the expense up front while spreading the cash flow over time. This can be especially beneficial if your business is like most and cash flow is actually more important to you than expense.

If you have questions about how the 2018 tax law can be used to your advantage on computer, furniture, software, or other leases, please contact us. We’re happy to talk specifics about your business leasing needs and how the new legislation will impact you financially.

DFI Attends Orion First’s Small Business Lending Forum

Our loan and leasing partner Orion First will be putting on a Small Business Lending Forum in Denver on August 13th and 14th at the Hilton Denver Inverness Hotel.

They are bringing together industry leaders to discuss trends and regulations shaping the future of the lending industry. This free event will be a great opportunity for lending and leasing professionals to get together for a keynote and 3 great breakout sessions:

  •  How Outsourcing Supports Your Goals and Strategy
  •  The Innovative Lending Platform Association & Healthy Business Lending
  •  The Present and Future of Scoring in Equipment and Small Business Finance

Register for the free event here.

Why Companies with High Cash Reserves Still Choose to Lease

The affordability of equipment, technology and other hard assets can make or break a company’s growth. This is why leasing is so appealing to many businesses – acquiring these necessary items with a manageable monthly payment. But why then do established businesses with large cash reserves choose to lease, when they could just pay off the asset and avoid the interest? It turns out that there are quite a few benefits to financing for all types of organizations, from start-ups to Fortune 100s alike.

Tax Benefits
Leasing allows your customers to deduct monthly lease payments on a true lease as an operating expense. Depending on the lease structure and the accounting treatment, this means their lease may qualify for off-balance sheet treatment, which may assist them in acquiring the equipment they need while maintaining compliance with bank and loan covenants, staying within capital budget constraints, improving their financial position.

Another set of tax benefits many organizations take advantages of are Section 179, bonus depreciation and qualified leasehold improvements. With Section 179, the IRS allows for the project cost to be fully deductible if your business uses the leased equipment and lease payments pay the cost over time. Interest as part of the payments is also deductible.

Bonus depreciation is the provision that allows businesses to expense off a portion of an asset in the year it is added. This has proven to be very helpful for businesses with large amounts of qualifying equipment, as they are able to save large amounts of tax in the year of purchase. With a gradual depreciation phase-down in place, production equipment and improvement purchases with less than 20 year lives will be able to be expensed at 50% of the asset price in the year of purchase through 2017, 40% in 2018, and 30% in 2019.

Qualified leasehold improvements allow depreciation lives to be reduced to 15 years, instead of the 39 year schedules normally applied. This means that after Section 179 and bonus depreciation deductions, a business will be able to accelerate remaining tax value of improvements over 15 years instead of 39 years. This rapidly reduces the timeframe in which a business can depreciate an asset and enjoy the tax benefits more quickly.

Cash on Hand
It is hard to think of a scenario in which a business having a solid cash reserve would be a bad thing. As any business owner will attest to, having liquid capital to fall back on is always a good idea, especially when one considers the multitude of issues that may arise in a given day. While many businesses have the ability to pay for the equipment and other hard assets up-front, they would rather not deplete their cash or working capital capabilities. And with the ability to put little to no money down in order to acquire an asset, businesses are able to continue their workflow without disruption from an extended waiting period.

Fixed Monthly Payment
Knowing that a fixed cost is on the horizon can actually be a relief to a business. One of the most difficult things about expense accounting month-to-month is factoring in the new, surprise costs that pop-up. That is why even when they are able to pay the full cost up-front, many businesses opt for monthly payments since they are expected costs that allow them to better manage their budgeting cycle.

Hedge of Technology
In an age when the next best thing may be available a month after you purchase the latest and greatest, there can be a fine line behind staying up to date and lagging far behind. This is one benefit that leasing can provide better than paying for assets outright. Depending on the structure of the financing agreement, many companies lease assets as a way to stay current with advancement, updates and new features on a regular basis. This usually proves easier than trying to sell the asset themselves at a loss, only have to turn around and buy something new at full-price.

Since leasing is a hedge against technology, many businesses choose operating leases wherein at the end of the lease term, they have the option to return the asset. If the then fair market value of the asset is less than the residual that the business assumed, they bear the loss but are protected from fair market value fluctuations. Also, if the lessee chooses to swap the asset for one of newer technology, then the existing lease can typically be terminated and a new lease initiated.

Recent Transactions with DFI

At Dynamic Funding, Inc., we help business owners acquire the hard assets they need to expand and grow their business without tying up capital. Most recently, we have helped businesses in manufacturing, brewing and IT with expansion projects and final touches before opening. Read more about each below:

Office Furniture Refresh
Fair Market Value/Operating Lease – $70,000 over 36 months
The customer was at a point where using their capital wasn’t appealing, so they pursued a financing option instead.

Kitchen Equipment
$1 Out/ Capital Lease – $25,000 over 48 months
The customer was a startup brewery at the end of their build-out, and realized that they didn’t have the capital for the last piece of the restaurant equipment. They found DFI at the right time, and they were able to open their doors for business.

Office Expansion and IT Acquisition
Fair Market Value/Operating Lease – $109,000 over 60 months
The customer was doing a large office expansion, and didn’t have the capital reserves to put toward their new furniture and IT equipment. They opted to go with leasing, and liked that DFI would put half of the amount down to get the order started.

5 Mistakes Every Start-Up Business Owner Makes When Looking For Funding

Alex Gish, Director of Business Development

As a leader in equipment financing consultation with Dynamic Funding, Inc., I have listened to hundreds of small and start-up business owners who are seeking capital and operating leases, and it seems like they have all made the same key mistakes. As a trusted partner to small businesses and start-up entrepreneurs, I would like to share the insights I have gained to help you successfully attain funding. While identifying the right financing provider and their terms will be the first thing, there are 5 things you should always avoid.

Not having your business plan finalized
Every funding source has a set of criteria for a venture they are looking to lease or lend to. You can’t imagine the number of small business owners who try to start the funding process, but don’t get anywhere because they aren’t ready to share their business plan. Even though you have likely had extensive conversations about your business’s financing needs, business plan is the best way to communicate them.

When you show up to your first meeting, your business plan should be completed, and include any sales projections, profit margin models, and a full summary. A financing deal will likely have several different people looking over it before being approved, so it is always better to share a polished business plan that covers anything that could possibly be needed. This not only speeds-up the process, but makes both you and your business look more professional, increasing your chances of success.

Not having enough market research
Whether or not a financing company decides to fund a loan ultimately rests on how viable the business seems. They are taking on risk in order to help you secure funding, and have to be sure that you will be able to pay them for the assets/loans you acquire. Having an ample amount of market research is one of the best ways to alleviate their concerns, and demonstrate you have a solid grasp on your market sector.

A basic business plan should cover competitors in your specific industry, but the business owners that I speak to who get their leases approved also bring insights about their sales area, demographics of their customer base, potential competitors outside of the industry, trends going in consumer behavior, and any projections for where the industry will go. Business owners who are able to communicate how their business is different/better than their competitor also seem to secure funding more often.

Not planning to share personal financials
Since leasing and financing deals depend on the viability of a business, credit history and company financial information is a paramount piece of the decision. But for small businesses or start-ups, there may not be enough of a financial history or credit profile established to glean information from. In this case, many financing companies will want to look at the business owner’s personal financial information to establish a basis.

These companies are mainly looking for red-flags in credit history, bankruptcies or liens, but having more personal financial information readily available can convey an eagerness and dedication to having the business succeed (and having the lease repaid). You should also share any assets you may have, or stakes in other ventures you are invested in.

Anticipating a low lease rate
For small businesses and start-ups that lack long-established credit and financial histories, the rates for financing agreements are often higher because of the amount of risk the financing company is carrying. I speak to a lot of business owners who are surprised that lease rates are in the mid-teens, since they see far lower advertised aimed at medium-to-large business structures or small business that are well-established.

You should definitely get rates from several sources, but I would not recommend expecting anything lower than 12%. One thing worth mentioning is that your personal financial history and credit profile could help lower this rate slightly.

Expecting a large amount of funding
Since every capital decision rests heavily on credit and financial histories, it should also be noted that small businesses and start-ups are typical only approved for a small amount of funding. This is usually under $25,000, but can go up to around $75,000. In a similar sense, many financing companies will fund a portion of the requested amount if it exceeds their comfort threshold.


I always recommend that people do research and gather as much information about a financing company to gauge their comfort level for risk and new businesses. Never be afraid to ask as many questions as possible up-front, since it can only help you decide whether this company is a good fit for your needs.

If you would ever like to discuss the financing options available to your business, or gain insight into the financing approval process, reach out to me, Alex Gish, Director of Business Development for Dynamic Funding, Inc., here.


Putting the PATH Act to Use in 2016

At the end of 2015, the Protecting Americans from Tax Hikes Act (PATH) was signed into law, allowing business owners to once again take advantage of depreciation and energy tax benefits. The new package provides a set of incentives that could greatly reduce tax costs for qualifying businesses.

Section 179
The first benefit for businesses that made equipment, asset and building improvements in 2015 is the Section 179 deduction. These businesses can now expense a combined $500,000 for production equipment (new or used), off-the-shelf software, and up to $250,000 in leasehold improvements. This deduction phases out dollar-for-dollar for equipment and improvements costing more than $2 million, and carries the stipulation that these upgrades need to have been “in service” by December 31st of the tax year. The example below demonstrates how beneficial this deduction could be for tax savings.

Assuming upgrades were “in service” in 2016, the following cost savings could be applied to a purchase of $500,000 in equipment:

   $500,000 in equipment
–  $175,000 assuming a 35% tax rate
= $325,000 true equipment cost

Bonus Depreciation
The next development to come from the PATH Act is bonus depreciation. Bonus depreciation is the provision that allows businesses to expense off a portion of an asset in the year it is added. This has proven to be very helpful for businesses with large amounts of qualifying equipment, as they are able to save large amounts of tax in the year of purchase. A gradual phasedown has been implemented. The bonus depreciation plan through 2019 breaks down as follows:

  • As of January 1, 2015 through December 31, 2017: 50%
  • As of January 1, 2018 through December 31, 2018: 40%
  • As of January 1, 2019 through December 31, 2019: 30%

These rates mean that production equipment and improvement purchases with less than 20 year lives will be able to be expensed at 50% of the asset price in the year of purchase through 2017, 40% in 2018, and 30% in 2019. While this section does carry certain stipulations around qualified assets, it is a great opportunity for companies to invest in necessary equipment for a significant amount of savings.

Qualified Leasehold Improvements
The final piece of the PATH to help businesses save on taxes comes via qualified leasehold improvements. Depreciation lives are reduced to 15 years, instead of the 39 year schedules normally applied. This means that after Section 179 and bonus depreciation deductions, a business will be able to accelerate remaining tax value of improvements over 15 years instead of 39 years. This rapidly reduces the timeframe in which a business can depreciate an asset and enjoy the tax benefits more quickly.

Brad Bayless Authors Article on Creative Business Financing

Three things you never thought you could finance
Creative business financing
Brad Bayless

Most businesses require equipment to operate, grow and stay competitive. Financing office equipment, technology and other improvements is an important but often challenging part of the business lifecycle.

More than 60 percent or $903 billion in equipment and software is financed in the U.S. through loans, leases and lines of credit with equipment finance companies providing access to capital. Leases typically cover office equipment, manufacturing equipment and computers, but there are a variety of undiscovered items that businesses can also finance to help improve cash flow, preserving working capital and increase productivity and operations. Here are three items worth considering.

LED Lighting

New financing strategies and incentives make LED lighting an easy upgrade with little to no capital costs. Innovations in LED lighting, including intelligence and controls, provide significant energy savings, improved lighting levels and little to no maintenance. Leasing allows companies to recognize immediate energy savings without having to pay the full cost of a package upfront, which can include design and installation, recycling of previous lighting and a full suite of LED lighting products. Payments are often offset by energy savings and the full cost of leasing a lighting package can typically be deducted from taxable income.

Software as a Service (Saas)

Because technology is constantly evolving, it can be challenging for businesses to keep up with the latest software and make the most of significant hardware investments. Leasing licensed software or software as a service (Saas) can provide companies with the most up to date software while preserving working capital and credit lines. SaaS or “on-demand software” is licensed on a subscription basis and centrally hosted, which can reduce IT support costs by outsourcing hardware and software maintenance and support to the SaaS provider. SaaS has become a common delivery model for many business applications, including large-scale payroll software, CRM and ERP systems. And because this type of software can be financed with off-balance-sheet accounting via an operating lease, it is a service worth investigating.

Office Furniture, Design and Installation

Companies often wait to update office furniture until it is outdated, damaged or employee complaints surface.  What many business owners don’t realize is that they can finance a complete office furniture package, including design and installation. The equipment and office furniture that a company needs today may not meet needs in the near future and an updated design may be a necessary upgrade. A lease can be structured to help design and deliver a new layout and furniture that matches the life “usefulness” at the moment without tying up capital. Unlike bank lines and adjustable rate loans, payments for leasing office furniture are fixed for the term of the lease and are typically not affected by market conditions.

High quality office equipment, furniture and fixtures project a certain image to clients, increase productivity of employees and do not have to come with a high price tag. By leasing rather than purchasing these types of business improvement items, they can be kept off of the balance sheet, reduce a company’s debt to equity and leverage ratios and help conserve cash for other necessary expenses or growth opportunities.

Brad Bayless Authors New Article for CoBiz Magazine

Riding the wave into 2015
Create growth opportunities for your business
Brad Bayless

As we dive headfirst into Q1, we are likely to see companies investing in additional resources, whether that be people, equipment, software or infrastructure. It’s the time of year when change is ripe, and with confidence on the rise, we’re poised for increased opportunities for growth and change as the door swings open to 2015.

Privately held U.S. companies are entering the New Year with strong profitability and healthy sales growth, according to Sageworks, a financial information company. “Over the past twelve months, private companies are growing sales at an annual rate of 8.6 percent. Private U.S. firms are also seeing their highest net profit margins in three years, at 6.6 percent.”

With increased sales comes the need for additional resources to support growth, enhance employee productivity and improve operations so deal flow can continue.

According to Ernst & Young (EY Divestitures), the dynamics that made 2014 a record year for U.S. deal making will continue into the new year, pointing to ongoing buoyancy for the M&A market in 2015. This trend is likely to stay on course as 81 percent of executives expect the deal market to improve in the next 12 months, while 41 percent of U.S. companies have five or more deals in their pipeline versus just 8 percent of companies six months ago.

This is good news on all fronts and sets the stage for confidently marching into 2015. For companies who want to take advantage of the positive trend, are in a growth mode, in need of upgrading their capabilities from the previous year, or have been involved in recent mergers or acquisitions, a variety of financing opportunities exist. Read more and comment.

Industry News Report Positive

By Brad Bayless

I just returned from the ELFA Annual Conference where attendance was up and above previous year’s records. The Association’s Monthly Leasing & Finance Update out today also shared positive sentiments —  “New business volume Up 21 percent year-over-year, up 31 percent month-to-month, up 8 Percent year-to-date.” Good news for the industry and our clients in terms of credit approvals and access to commercial financing for hiring, technology enhancements and equipment upgrades.