The Ultimate Guide to Equipment Leasing
There are two groups categorized for equipment leasing: operating leases or capital leases. A lot of team and rental equipment company can provide and offer you a rental deal that best suits your needs – Strongbox.
Two types of equipment leasing
- Capital Lease – this allows you to get all the liabilities and all the assets of the equipment placed at your business’ balance sheet.
- Operating Lease – the lender who owns the equipment will get the advantage of depreciation. This best suits for short-term shelf life and allows to get released/replaced by the end of lease deal.
Determine if what you need is an equipment lease or equipment loan
- Equipment Loan – this is buying and owning the equipment while you finance it with a loan. This allows you to spread out the cost of the equipment over several years wherein you pay back the principal price and include to pay the interest over the term of the loan.
- Equipment Lease – This is a long-term agreement to rent equipment. You do not agree to pay off the principal amount plus the interest, you only agree to pay for the term you are going to use the equipment.
Meet the five (5) types of equipment lease
- Buyout Lease – The interest rate is 6-15%. This is best for borrowers who would then like to buy the equipment after the term of the lease, but want to spread out the cost of the equipment into equal payments rather than having a lump sum at the end of the term.
- Option Lease – The interest rate is 7-16%. This best suits businesses who are not yet sure whether to own and buy the equipment at the end of their term or not.
- Fair Market Value Lease – The interest rate varies but has the highest long-term cost. This is for businesses renting the equipment that they know they will replace at the end of the term.
- PUT Lease – The interest rate is 7-16% which best suits businesses that want to avail the equipment at the end of the term but might ask for a lower payment.
- TRAC Lease – The interest rate is 6-12% and best suits for vehicle purchases or leases. It is best for those who need to decide how much to pay at the end of the term if wanting to purchase the vehicle.
For businesses who are yet about to decide whether to go for capital lease or an operating lease, capital leases are great for large pieces of equipment to keep in a long-term asset while operating lease is best for acquiring equipment to use for a short-term shelf life and if unsure whether you’ll need the equipment longer or not.