Equipment Leasing and Your Business: A Step by Step Guide
In order to run a successful business, you’re going to need the proper equipment, but what if you don’t have the funds to purchase it all at once or only need it for a set period of time? That’s where equipment leasing comes in handy. Whether you’re looking to eventually own the equipment or you’re planning to return it after use, there is a leasing option that’s right for you.
To Buy or Not to Buy, that is the Question
Your options are different depending on your intent to buy the equipment or not, and this important decision needs to be made before examining the available choices. Leases typically fall under two categories: capital and operating. Capital leases are usually best for leasing equipment you plan to purchase, while operating leases are best for equipment you plan to return at the end of the lease, or for equipment that has a short shelf life. It’s also good to keep in mind that while capital leases often require higher monthly payments than operating leases, they typically save you money in the long run.
Types of Leases
There are different types of equipment leasing that fall into one the above categories, and your unique situation and goals will help you decide which one is right for you. The $1 Buyout Lease is a capital lease with relatively high monthly payments, but greatly benefits those who wish to purchase the equipment by spreading out the cost into smaller monthly payments. When you’re not sure if you want to ultimately purchase the equipment at the end of the term, you can try the 10% Option Lease instead. With this option, you can purchase the equipment for 10% of the cost at the end of the term, although you will still have to pay monthly to use it. The 10% Option Lease also falls in the capital lease category. For those who need a lower payment than the $1 Buyout or 10% Option offers, the 10% PUT Lease is an available choice.
A popular type of operating lease you may want to consider is known as the Fair Market Value Lease. It’s typically best when the equipment has either a very short shelf life or will be returned at the end of the lease. However, with this option you are not considered the owner of the equipment, which means you can’t deduct the full cost on your federal tax return.
Equipment leasing is a great way for business owners to save money. By carefully considering your particular needs and understanding the different options available, you can be well on your way to acquiring the equipment you need at a price you can afford.