At the most basic level, a lease is an agreement in which a leasing company gives a customer the right to use its equipment for a specified length of time and specified payment.
When the lease ends, the customer can purchase, return or continue to lease the equipment, depending on the specifics of the lease.
Businesses who lease
Leasing provides a wide range of equipment leasing, including reprographics equipment leasing, medical equipment leasing, fabrication equipment leasing, material handling equipment leasing, office equipment leasing and computer networking equipment leasing.
More than 80 percent of American businesses in all fields lease at least one equipment purchase. Thirty-five percent of all business equipment is leased.
With capital equipment leasing, businesses can lease anything they need to run their businesses, from the specialized equipment for their fields to basic office equipment, software and communications systems. Even the costs of installation and consultation can be leased.
Why businesses lease
When businesses lease they are able to procure new equipment while maintaining their cash flow. Leases can be tailored financing agreements so payments are structured to meet a business’s individual needs. Unlike traditional bank loans, which generally require a 10- to 20-percent down payment, capital equipment financing typically requires only one or two upfront payments, which are applied to future payments. Capital financing also protects businesses from purchasing equipment that can quickly become obsolete. With capital equipment leasing, businesses can update their equipment to keep pace with new technologies. Capital equipment financing conserves working capital and keeps other lines of credit available. It also provides tax benefits for businesses.
Types of leases
A true lease or operating lease is used for equipment that can depreciate in value or become obsolete quickly. Under a true or operating lease, the capital equipment financing company owns the equipment for the duration of the lease. At the end of the lease, the lessee can return, purchase or continue to lease the equipment. True or operating leases generally come with lower payments, and businesses usually count the lease payment as an operating expense.
A finance lease or capital lease is used when the lessee plans to own the equipment when the lease term ends. The price of the equipment plus interest is spread over the length of the lease, and the lessee can purchase the equipment for an agreed-upon amount, such as a fixed percentage of purchase price or $1.
A skip lease can be used by companies that need a flexible payment schedule. They are often used by seasonal businesses, such as agricultural or recreational businesses, or school systems. Under the terms of the lease, businesses can specify months when no payments are made.
A master lease is used for businesses that need to lease additional equipment over a period of time. A master lease sets basic terms and conditions of the lease agreement, while lease schedules — with different term options and lengths — are set for individual pieces of equipment.
Length of Lease Options
Lease lengths are flexible with a range of terms, from 12 -months up to 60 months
Buyout or purchase options
At the end of a commercial capital lease, businesses may have the option to buy out or purchase their leased equipment. The terms of a buyout or purchase options are determined as part of the initial lease agreement. Common buyout options include purchasing the equipment for its then fair market value for a operating lease. The abandonment lease, or $1 buyouts, allows businesses to purchase the equipment for $1.