Finding ways to keep your operational costs down is one of the biggest challenges that businesses face. Recently many companies have been leasing equipment rather than buying it outright. By leasing, these organizations can free up working capital while still obtaining the equipment they need to be successful. In the current market almost all equipment can be leased so having a complete understanding of the equipment leasing process and equipment leasing rates is vital to the success and growth of an organization that plans to utilize leasing.
How Equipment Leasing Works
Equipment leasing allows an organization to access necessary equipment without the burden of ownership. The lessee will make regular payments in exchange for the use of equipment that the lessor maintains ownership of. Leasing allows organizations to reduce the liability in owned assets while upgrading their equipment more frequently and tying the product's lifecycle to the duration of the lease.
While there are many different lease arrangements there are two main types to be aware of: the capital lease and the operating lease. A capital lease is a lease agreement that transfers ownership to the business owner at the end of the lease. An operating lease, on the other hand, grants the business owner temporary use of the equipment with no transfer of ownership at the end of the lease.
What are the Qualifications for Leasing Equipment?
The equipment lease application process can be a quick and simple given you have the right financial requirements. Other factors to speed up the process are:
- Credit score
- Business history
- Type of lease
- Length of lease
- The ability of the equipment to hold its value
What are the Different Types of Equipment Lease?
Equipment leases come in several variations. The key differences between them are payment type, term length, and whether the borrower or the lender keeps the equipment at the end of the lease. While every lease agreement is unique, most can be split into two categories:
- Fair Market Value Lease – A fair market value lease operates similarly to leasing a house or car. You make a monthly payment to use the equipment with the expectation that you will return it at the end of your term. Operating leases give you the option to purchase the equipment at fair market value when your lease ends.
- $1 Buyout Lease – Payments go towards interest and paying down the full cost of the equipment. This is similar to purchasing the equipment through a loan. When the monthly payments have been completed, you will owe a symbolic $1 if you elect to own the equipment outright.
How are Equipment Lease Rates Calculated?
Having an accurate equipment lease calculator is key to ensuring you find the best deal for your organization. The final lease rate will be composed of three components:
- Dollar Value of the Equipment – This is the agreed-upon price of the equipment. Any add-ons such as delivery, maintenance, and installation fees, are considered a soft cost. Soft costs will not be factored into the lease rate of the equipment, however, they can be bundled into the total monthly lease payment if requested.
- Debt Rate – A factor in the loan a lessor gets from a banking partner to acquire the equipment being leased. Generally, the longer the lease, the higher the interest rate due to the uncertainty of rates in the future.
- Term – The term is the length of the lease agreement. Longer lease terms will typically mean lower monthly payments for the lessee. Depending on the asset, typical lease terms can vary from 36-, 48-, 60-months.
Final Thoughts
Leasing equipment is a popular alternative to purchasing and comes with many benefits such as improved cash flow potential, greater access to cutting-edge technology, and enhanced flexibility in infrastructure and budgeting. If you are still unsure as to whether equipment leasing is right for you, call +1 (855) 980-4578 or send an email to [email protected] for more details or to speak with an equipment specialist at Meridian Leasing.