Demand from businesses that are interested in leasing equipment has been growing briskly in recent months, as borrowers seek alternatives to the battered loan market, but credit standards for leasing also are tightening, those in the industry say.

Kevin Cunningham, president of Spokane-based leasing company Enterprising Capital Partners Inc., says that company has reviewed about 600 equipment lease applications in the past six months—three times as many as in the previous six months. Notably, however, Enterprising Capital ended up funding only 60 leases in the past six months, about half what it normally would do in that amount of time, Cunningham says.

"There has been a real push towards improved credit quality," Cunningham says.

The difficult credit market isn't the only factor driving greater demand for leasing, says Fred Selby, Spokane office sales manager for Copiers Northwest. So, too, he says, is the need to keep pace with technology.

Selby says that 75 percent of his customers now are asking to lease office equipment rather than buy it outright, and that percentage has risen from about 65 percent in the past two years.

"One trend in the industry is rapid change of technology, leaving the customer wanting the latest technology without having to wait for the depreciation of the capital purchase to get the latest and greatest," Selby says. "The other trend in the office technology industry is businesses needing the latest technology to accomplish day-to-day business without spending capital needed for other aspects of their business. And leasing affords them that freedom."

Copiers Northwest's office here, at 10311 E. Montgomery Drive, is part of a Seattle-based chain with about 10 offices in the Northwest.

Selby has seen an increase in business from law firms, while customers such as title companies, real estate offices, construction companies, and mortgage brokers are downsizing or closing their doors.

Cunningham says those latter industries, along with logging concerns, auto dealers, and restaurants, are among sectors that lenders consider risky customers. The banking syndicate that Enterprising Capital uses to fund its leases keeps lists of such "restricted" or "cautionary" industries. It currently won't authorize leases in industries considered "restricted," and will only do so under strict conditions for industries considered "cautionary," he says.

Equipment that's more durable or high-utility, such as medical equipment, machine tools, and industrial equipment, has been a safe source of business for Enterprising Capital, he says.

There's definitely money available to fund leases, Cunningham says.

"If a bank won't lend money to you, a leasing company is a good place to go," he says, but adds that businesses seeking to lease equipment should be prepared to answer a lot of questions.

Seattle-based David Farrell, managing director for lease syndications and indirect originations for Banc of America Leasing, says that in today's tight-credit environment, in which most capital markets are either constrained or shut, the leasing market remains open and is an alternative source of capital for companies. Banc of America Leasing is a unit of Bank of America.

"This has become a much more important driver than in years past, where credit was easily and readily available," says Farrell.

He also lists tax implications, accounting treatment, and equipment management among the factors determining why people lease or don't lease equipment.

If a company doesn't need the tax benefit of depreciating equipment, leasing is typically favored over buying, says Farrell, adding, "In the buy scenario, depreciation wouldn't typically be beneficial for a company in a negative tax position."

He says, "Leasing can be beneficial when the expected ownership cycle for the equipment to be purchased is uncertain, the lessee's tolerance for assuming the cost and burden of remarketing the equipment down the road is low, or they find the idea of transferring the risk of a decline in equipment value to a third party appealing."

If a company is adding equipment for a specific job and wants to be able to return the equipment to a third-party lessor at the end of the project, leasing may be an excellent alternative, Farrell says.

Kevin Donovan, a Walnut Creek, Calif.-based vice president and regional manager for U.S. Bank Equipment Finance, says U.S. Bank has seen softening demand for equipment leasing and financing as some businesses have delayed or cancelled equipment acquisitions.

Still, he says, "While demand is down, due to a variety of reasons, companies that previously had not used leasing to acquire their equipment are now considering it."

There are good reasons to lease equipment now, Donovan says.

Companies that might be subject to the alternative minimum tax or that have minimal tax liability can use leasing as an efficient way to acquire equipment, he says. "A company can take advantage of the lessor's ability to use the equipment depreciation, passing the benefit along to the company in the form of lower monthly lease payments. This is especially true when you factor in bonus depreciation, which has been extended in 2009 as part of the American Recovery and Reinvestment Act (of 2009)." That's the formal name of federal economic stimulus legislation signed by President Obama last week.

Additionally, Donovan says, businesses looking for ways to minimize initial cash outlay on equipment acquisitions are turning to leasing because in many cases it offers 100 percent financing of acquisition costs.

"If the equipment is part of a business's long-term strategic plan, and the company is profitable and has an income tax bill, then either paying cash or getting a secured loan would be preferable to leasing," he says.

Generally, a lease for a tractor-trailer truck would run about three to five years, and a trailer would be for about seven years. Computer equipment leases generally run about three years. For equipment such as a railcar or barge, the lease could be up to 15 years, he says.