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Equipment Leasing Quick Facts

Most business owners have questions about equipment leasing. Here are some quick facts about leasing that will get you up to speed.

What is Equipment Leasing?

Equipment leasing is where a lender buys and owns equipment and then will rent the equipment to a business. The business will have a contract with the lender, making monthly payments for a set time. After the lease is up, the business has the option to buy it, upgrade the equipment, continue to lease or return it.

The leasing business has steadily grown over the past 40 years, allowing businesses to enjoy the advantages of having equipment without having to pay for it all up front. Leasing works well for start up businesses that are unable to swing a large cash outlay. But, it also is beneficial for established businesses who don’t want to tie up large amounts of money and credit.

With equipment leasing, it is possible to lease almost any type of equipment, whether it is business, computer, construction, medical, dental, and heavy or restaurant equipment.

The Three Main Types of Leases

1) Fair Market Value Purchase Option (FMV): here the customer can return the equipment, purchase the equipment for the fair market value or renew the lease. This option has the lowest monthly payment and flexible purchase options when the lease is up.

2) 10% Purchase Option: this option allows the customer to purchase the equipment for 10% of the original cost or they can return the equipment.

3) One Dollar Purchase Option: this type allows the customer to buy the equipment for $1 when the lease is up, although the monthly payments will be higher than the FMV.

Whether a business is considering the option of buying or leasing their equipment, it is a good idea to calculate the costs associated with getting the equipment relative to the projected earnings you will make as a result of having the equipment. The bottom line of any business is to bring in more money than is spent. Leasing equipment can help many businesses achieve this goal without a large upfront investment.