Almost every small business owner will require some type of equipment whether it is a computer, printer, copier or industrial type equipment. Chances are, you’ll be approached by equipment leasing companies. Jean Scheid tells us all you need to know about equipment leasing.
Beware of Equipment Lease Options
Before you consider leasing equipment for your business, ask your accountant for advice. Find out if leasing will be advantageous or a costly expense. Ask yourself how long you want to utilize the equipment, what the end of lease options are, your cash available to meet monthly lease payment obligations, and how will the equipment help you expand your business.
Because almost 31% of all equipment is leased, there are some tax benefits as well as lower monthly payments. If you obtain a standard loan to purchase equipment, loan prep fees and conventional loan fees may apply.
If you need a copier that comes with all the extras or an entire network, it’s possible to lease your equipment but what type of lease should you enter into? For business startups, often leasing equipment is your only option, especially if you don’t have enough cash to purchase the equipment outright. Here are some equipment leases to consider.
Fair Market Value Lease
Also known as a true lease, the fair market value lease is one option to consider, but it often depends upon the equipment you want to lease. With a fair market value lease, you make monthly payments to the lessor and at the end of the lease you have a few options. You can renew or extend the current lease, return the equipment at the end of the lease, or purchase the equipment at fair market value.
This type of lease has its downside. Most lease companies require a down payment of at least 25% of the total cost of the brand new equipment. If the equipment you want to lease will depreciate quickly, only utilize this type of lease as a short-term option with a lease term of no more than two years. Copiers, high-line printers, and computer networks are considered good candidates for the fair market lease.
Dollar Buy-Out Lease
In a dollar buy-out lease, at the end of the lease term, you have the option to buy the equipment for one dollar. The dollar buy-out lease is great for larger and more costly equipment that you will want to keep at the end of the lease. This type of lease, also known as a capital lease, uses the equipment you want to lease as your collateral. Auto repair centers, farms, printing shops, and auto body repair shops often enter into this type of lease to meet long-term equipment needs.
Dollar buy-out leases are great if you need to finance 100% of the equipment you need to run your business. Often, only lease preparation fees are paid upfront if you qualify.