Leasing Business Equipment

Looking to finance or lease some new equipment? You might as well be looking at a buffet menu. There is no shortage of choices when it comes to financing heavy equipment. So how do you decide what’s right? That’s exactly what we plan to cover in our blog, and we’ll start this one off with one of the more common types of financing to fund your new equipment needs– the ever-popular lease.

Why Are Leases so Common for Heavy Equipment?

Because every business that relies heavily on the use of equipment needs to keep up with technological changes to stay competitive. Whether your company deals with technology, healthcare, or a substantial reliance on heavy equipment; newer equipment often gives you the edge to get the job done faster. 

Speed is the name of the game in most industries, and the faster you can get the job done, the better off you’ll be.For that reason, equipment leases have become very popular. They are often faster to get approved and have less red tape. They also have some unique benefits which we’ll get into in these next two blog posts.

There are 5 common types of equipment leases, and in the interest of keeping things succinct, we’ll cover the first two very common equipment leases in this blog:

  1. $1 Buyout Lease
  2. Fair Market Value Lease

Let’s dive into the explanations, pros, & cons of each.

Explanation of a Dollar Buyout Lease

This type of lease offers a $1 buyout at the end of the lease term; it is often called a capital lease or a finance lease because it is more similar to a loan than a typical lease. With a dollar buyout lease, after the lease period ends, you will typically have the option to buy the equipment and obtain full ownership for only $1.00.

Explanation of a Fair Market Value Lease

With a fair market value lease, you can opt for a lease that provides lower monthly payments and an opportunity to purchase the equipment at the end at a full fair market value. It also provides a mechanism for companies to avoid being saddled with outdated equipment after the lease comes to an end.

In most cases, you’ll have a lower monthly payment with a fair market value lease than with a capital lease, an equipment finance agreement, or a loan. The finance company usually expects to do a renewal lease or sell the equipment to the lessee at the end of a fair market value lease. Of course, you still have the option to purchase the equipment for the fair market value after the lease term expires or simply return the equipment.

Pros and Cons of a $1 Buyout Lease

There are significant advantages and disadvantages when considering this type of lease. Here are some of the top reasons why a $1 buyout lease may be a good fit for your company:

On the other hand, there are also many reasons for companies to opt for a different type of financing. Here are three major reasons:

Pros and Cons of a Fair Market Value Lease

There are some major benefits of a fair market lease, starting with costs. Here are some reasons to consider this option:

As with a dollar buyout lease, there are also reasons why a fair market value lease may not be the right choice for your company, including the following:

Conclusion

In conclusion, you can think of a fair market value lease as an option to use the equipment you need without being “married” to it (unless you want to be, after you “date” for a while), while a capital lease with a $1 buyout is a route towards purchasing the equipment with little to no upfront capital (and you are definitely married to that equipment).

These are just two of your leasing options, although very popular, that could help your company get the equipment you need. We’ll go more in-depth on the other three on the next blog.

If you are in need of financing for your next big project please click here to apply.