If you don’t have enough funds to purchase equipment for your business, small business equipment leasing is an alternative. Leasing business equipment is paying for the use of equipment on a rental basis. You can lease just about anything for your business including cars, computers, manufacturing equipment and more. When leasing equipment you pay on a monthly or yearly basis.
Two types of Equipment Leases
True Lease / Operating Lease– In a true lease, you have no rights or ownership over the equipment you are leasing. The rental payments you make on the equipment does not give you any form of ownership over the equipment. You just have the right to use the equipment until your term in the true lease contract is over. True leases do offer you advantages. Besides the lower monthly payments, a true lease usually qualifies as an operational expense and therefore is 100% tax deductible! When your true lease term is over you will have to return the equipment to the owner or you may be granted the option of purchasing the equipment at it’s fair market value, or extending the terms of the lease.
Financial Lease/ Capital Lease– This type of lease is used to finance the purchase of the equipment. Instead a paying one large lump sum to purchase the equipment, you spread out your payments over the equipment’s life cycle. The Financial Lease is structured so you purchase the equipment at the end of the agreement. The advantage is that your monthly payments are going into the purchase of the equipment but the disadvantage is that unlike a true or operating lease it is often not tax deductible.