Leasing has become one of the most popular methods of purchasing equipment. Studies show that almost 80% of all companies today lease their equipment, and equipment leasing represents a third of all equipment purchases in the United States.
A lease is simply a transaction where use and possession of equipment is passed to the user (lessee), but ownership is retained by the owner (lessor). The lessee makes payments to the lessor for the right to use the equipment.
There are various types of leases:
- TRUE LEASE: Sometimes called Operating Lease, at the end of the term the Lessee returns the equipment to the Lessor.
- FAIR MARKET VALUE (FMV) LEASE: Similar to a True Lease, except that at the end of the term the Lessee has the opportunity to purchase the equipment for the current value of that equipment as negotiated between the Lessee and Lessor.
- CAPITAL LEASE: A lease with a fixed buyout at the end of the lease, generally $1.00.
- EQUIPMENT FINANCE AGREEMENT (EFA): Not a lease, but a finance agreement that has similar structure to a lease but at the end of term, there is no residual value and the Borrower owns the equipment.
Each of the above financial instruments and many others all have different characteristics and are evaluated differently for financial statement and tax (IRS) considerations. A lessee will want to take their particular situation in mind when deciding which type of agreement they wish to use when purchasing equipment.
If you have any additional questions about your particular business, please give us a call.
F.I.T. Leasing consistently provides the best possible experience for our customers and vendors during the equipment purchasing process. We think creatively, act proactively, and are fanatical about customer service.