Equipment leasing is proving to be one of the most popular options for companies looking to purchase new equipment, and there are thousands of leasing companies serving this demand nationwide. The Equipment Leasing Finance Association (ELFA) says that companies lease about $1.2 trillion worth of assets annually, from office equipment to software and computers. This represents more than one third of all used equipment in the US and represents a significant share of the overall business leasing market.
Of course, not all equipment leases are the same and there are many ways to finance a lease. If you need to upgrade your equipment at the end of the financing period and do not want depreciation on your books, you can apply for a lease loan for the equipment.
Your Leasing Options
If you need lower monthly payments, consider leasing a business or FMV lease if you are leasing equipment that is rapidly becoming obsolete. FMV leasing contracts are only possible if the equipment is so valuable that the leasing company’s handling costs are worthwhile. In other words, the leasing company must feel that it is worth the time and effort required to find a new buyer or tenant for your equipment and terminate the lease.
A 1-buyout lease is a common type of capital lease that allows the lessee to purchase the equipment at the end of a lease for a nominal price of $1.00. Option leasing of 10% is a capital lease that gives you the option to own the equipment by purchasing it for a full 10% of its cost. At the end of the lease, you will generally have the option of either purchasing the lease at its market value as determined by the leasing company or extending the lease and returning it to you at a lower price than the original purchase price.
For example, a leasing company can buy a device at 9% APR and lease it at 12%. It is wise to calculate the full cost that the leasing company will charge you for the spread payment when comparing it with the initial purchase price of the equipment and its operating costs.
If you know that you do not want to own the equipment after the end of the lease, you can use a 1% buyout lease. Leasing is not the same as buying equipment directly, as you will have to buy equipment when your lease term expires, but it is much cheaper than buying equipment directly. If you find out that you no longer need to lease equipment after the lease period, you can exit the lease without penalty (high early termination fees always apply).
Leasing agreements give you the ability to terminate your leases as soon as your business changes direction or when your equipment leases are no longer necessary.
Cited Sources
- https://fitsmallbusiness.com/equipment-leasing/
- https://corporatefinanceinstitute.com/resources/knowledge/other/equipment-lease-agreement/
- https://www.entrepreneur.com/encyclopedia/equipment-leasing
- https://www.nav.com/blog/equipment-leasing-73277/
- https://www.businessnewsdaily.com/8083-equipment-leasing-guide.html