Lease Financing

What is a lease?

Simply stated, it is a contract where one party (who is known as the lessor) gives the other party (who is known as the lessee) the exclusive privilege to use and retain its equipment for a specific and predetermined period of time.

Who can lease?

Leasing has been a very attractive option for not only sole proprietorships, but also many partnerships, corporations, and even subchapter S corporations.

What can be leased?

Any new or used equipment that is used in your trade or business that is specifically designated within your company for the use of producing income.

What is the term of the lease?

A lease is usually structured to offer financing for as few as 12 months (1 year) to 60 months (5 years).

Buyback options designed to meet the needs of your business

There are usually two options to consider when leasing:

  • The $1.00 buyback lease (lease purchase)
  • The fair market value (FMV) purchase option

$1.00 buyback (lease purchase)

Use this lease to commit to a specified term, usually from 12 months to 5 years and at the end of the term, you will own the equipment. There will be nothing else to pay at the end of the lease. The $1.00 buyback lease allows you to very clearly define your specific costs and manage your cash flow. However, in contrast to today’s popular belief, there may be many tax benefits associated with the $1.00 buyback program.

Fair Market Value (FMV) Buyback

This lease also has a specified term from 12 months to 5 years. However, this has the advantage of an optional lessee buyback that is due at the end of a specific lease term. The fair market value (FMV) buyback amount that is due at the end of the lease term is typically 10 percent of the original cost of your equipment. The major benefit of the FMV lease is that it tends to have a lower monthly payment amount compared to the $1.00 buyback and the lease payments are often fully deductible on your tax returns as a valid business operating expense.

onEntrepreneur

onEntrepreneur is an online magazine centered on the world of business, entrepreneurship, finance, marketing, technology and much more. We are regularly updated – sign up with our newsletter to send the updates directly to your inbox.

Leave a Reply

Your email address will not be published.