Equipment leasing has long been recognized for the many benefits it provides, particularly to small businesses, such as franchises.

The 2005 annual survey that the Equipment Leasing Association (ELA) conducted among the Small Business Administration's (SBA) State Small Business Contest winners showed that nearly three-quarters lease some of their equipment.

The top reasons they cited for leasing are the ability to have the latest equipment, consistent expenses in budget planning, help managing company growth and no down payment.

Rapid growth and the need to keep up with customer demand are the reasons Top Notch CNC Machining, Middleburg, PA, a three-employee firm, leased a new computer numeric control machine, according to co-owner Todd Reich.

"We decided to lease this piece of equipment to make it more affordable for us," Reich says. "We have leased all of our equipment from the time that we formed our business."

Lower monthly payments and protection against obsolescence affected Dr. Harold Sirota's decision to lease since the time he started his practice, Sunrise Medical Associates, Valley Stream, NY, from scratch 17 years ago.

As with any start-up, leasing's low monthly costs were important; then as income started coming in, Sunrise Medical Associates used the lease-to-own options on things like office furniture.

Obsolescence is a concern to any business that uses technology-based equipment. "We have medical equipment that gets outdated so quickly, parts are no longer available," Sirota says. "I can upgrade it when the lease is up, and the asset management aspect of disposal isn't my concern."

While these benefits provide critical operational efficiencies, the equipment leasing industry has long understood that its greatest contribution is providing access to capital. ELA commissioned a study conducted by Global Insight, a global economic and financial forecasting company, the results of which quantified the impact of equipment leasing and finance on the U.S. economy.

The study, "The Economic Contribution of the Equipment Leasing Industry to the U.S. Economy: Growth, Investment, Jobs - Update, 2005," shows that, annually, over the five-year period from 1999-2004, the equipment leasing industry's effect on the economy:

While the report results demonstrate leasing's effects on a macroeconomic level, more important are the lessons businesses can use to operate their own firms more efficiently and productively.

What should businesses take away from the wider economic implications of equipment leasing? For one, the report's sizable real equipment investment figures underscore that leasing is a viable equipment acquisition method, one that savvy businesses should investigate as an option.

Joseph C. Lane, chief executive officer, GE Technology Finance, says, "It's very clear from these figures that equipment leasing is a critical element of capital formation in the United States."

He adds, "The report confirms that the upward direction of spending and leasing over the last five years is at the heart of how people acquire more equipment."

Paul Larkins, president and chief executive officer, Key Equipment Finance, says of the economic impact of leasing, "Businesses of all types and sizes-from the largest, most successful enterprise organizations to small, independent start-up companies-can be more innovative, competitive and productive when they have greater access to capital."

All businesses, regardless of size, are pressed to increase revenues and improve their bottom lines. To find improvements in productivity requires finding greater efficiencies.

Lane notes, "With labor such a large cost, corporate spending is unlikely to go towards more people to create more productivity. It's going to migrate to spending on equipment, technology and transportation that translates into greater efficiencies that are being demanded in order to increase the bottom line."

Greater knowledge of how to go about leasing will help businesses maximize the benefits they receive. The following questions are designed to help businesses make informed leasing decisions.

How will the equipment be used? Knowing how and the length of time the equipment will be used will help determine the appropriate level of investment for a lease. Performing a simple cost/benefit analysis that compares the periodic leasing payment to the revenue that is expected to generate from using the equipment will also help determine if leasing is a profitable financing option.

How well does the leasing company representative understand my business? The more a leasing company understands a business's particular industry, the more able they are to create a customized option for the business.

They should understand cash flow, tax requirements, seasonal business fluctuations and other operational and financial issues. A leasing company familiar with a particular firm's industry can also more accurately determine residual rates, the leased equipment's value at the end of the lease term. This allows the best possible lease payment schedule.

What is the total lease payment? Ask what the total monthly payment will be, the number of payments, and any additional costs, such as insurance and taxes. Also determine if there are late payment fees or other surcharges that could be incurred during the lease term.

What happens if I want to change or end the lease early? Ask if there are additional payments or charges if the lease is terminated earlier than the agreement states. For additional equipment needs, a master lease should be considered which allows additional assets under the same basic terms without negotiating a new contract.

What happens if the equipment is damaged or destroyed? A business should ask about and understand the liability for lost or damaged equipment. The terms, and all others, should be included in the leasing agreement.

Are there any other obligations for the equipment? Ask if the leasing company assumes costs for the equipment's insurance, taxes and maintenance. Also a business should determine whether it wants the leasing company to handle options such as installation, maintenance and other services.

How is equipment added or upgraded under this lease? Unless the agreement is a master lease, most likely a new lease for additional equipment will need to be negotiated. If a business anticipates future growth, an option to add equipment under original terms and conditions can be negotiated when structuring a new lease program.

What are the options at the end of the lease? At the end of a lease, the equipment can be purchased or the lease can be renewed. If the buy option is selected, ask when the title of ownership will be transferred.

What are the procedures if the equipment is returned? Find out where the equipment should be returned to, and what documentation and packaging materials are required.

Are there any extra costs at the end of the lease? Ask if there are any other additional costs based on account activity that may be charged at the end of the lease.

Leasing can help businesses obtain the equipment necessary to remain competitive and take advantage of new business opportunities that otherwise might be out of reach. The most important thing for businesses to understand is that equipment leasing makes sense for companies of all sizes, across all industries.