Lessees vary widely from small, one person operations to Fortune 500 corporations and the kinds of equipment leased are just as diverse.
What type of lease can I get?
The type of equipment you want to lease, the term, and whether you want to keep the equipment at the end of the term will all be factors in choosing a lease. Lessees may lease one piece of equipment at a time or many items with a single lease. On smaller equipment leases worth thousands of dollars, leases tend to be more standardized. A leveraged lease on a big ticket acquisition, such as an airplane, may include several customized provisions and options that would not appear in a typical lease for a smaller amount.
How do I determine what type of lease is best for my company?
As a method of acquiring equipment, you'll find leasing fairly straight forward. It amounts to a rental agreement that is structured to meet your company's special needs. As lessee, you and the lessor consider the following factors to determine the most effective type of lease for your company:
- How long you want to use the equipment.
- What you intend to do with the equipment at the end of your company's specific needs as they relate to future growth
Your needs will also determine what happens at the end of the lease. As a lessee, your options include: returning the equipment to the lessor; purchasing the equipment at fair market value or a nominal fixed price; or renewing your lease.
How does a lease work?
Almost any type of equipment can be leased. As the lessee, you deal with the lessor concerning the terms of the lease and the rate. Ancillary expenses, such as taxes, services, insurance and maintenance, are usually the responsibility of the lessee and are not deductible from the rental payment. By signing the lease, the lessee assigns its purchase rights to the lessor, who already owns or who then buys the equipment as specified by the lessee. When the equipment is delivered, the lessee formally accepts it and makes sure it meets all specifications. The lessor pays for the equipment, and the lease takes effect.
How can leasing help my financial picture?
Leasing allows you to keep your bank lines of credit open. Since leasing companies assume there will be a residual value in the equipment at the end of the lease, they can offer lower rental payments equaling a cash saving to you. Some types of term debt can interfere with your company's future financial structure. This does not occur with leasing. The Financial Accounting Standards Board (FASB) considers lease rental payments as an expense, not a debt, under many lease agreements. A key advantage of leasing is that it permits 100 percent financing, and the term of the lease can be matched with the useful life of the equipment. Therefore, if cash flow is a problem, leasing can help your company avoid down payments and keep scheduled payments low by stretching out payment terms. Moreover, as your business grows, bank lines of credit and your own cash are still available to support increases in your company's working capital requirements.
Are you getting your fair share of the unique advantages of leasing?
Today, more than 80% of all U.S. corporations lease some or all of their equipment. In 1996, over one third of all equipment acquired was through leasing - that's just over $260 billion worth of capital equipment.
A key advantage of leasing is that it permits 100 percent financing, and the term of the lease can be matched with the useful life of the equipment.*
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