Need new equipment on lease? If your business is currently running short on finances and you want to improve your growth and productivity by adding new equipment to your inventory, opting for equipment leasing is one of the best choices. It is an excellent financial alternative for ensuring consistent business growth and helps a company remain competitive while maximizing working capital and retaining cash flow.
If you are wondering what equipment leasing actually is, how it works, and its types, let’s dive deep into its basics in this blog.
What Is Equipment Leasing?
Equipment leasing is simply the process of renting equipment from a vendor or leasing company for a decided period of time, typically weeks or months. At the end of this period, the leaseholders are required to return the equipment, extend the lease, or purchase it, whatever seems appropriate.
To maximize the benefits of equipment leasing, make sure you choose the best leasing type that works for your business. You must ensure that you are simply signing up for an equipment lease and not slipping into the trap of a few leases that convert into equipment loans. There are two major types of equipment leasing, including:
- Capital Lease/ Finance Lease
These leases have the advantage of fixed monthly payments, and firms typically purchase the equipment at the end of the lease. Some major points of capital leasing are:
- The lessee has complete authority over the equipment and is deemed the owner until the lease period expires.
- The lessee might include the equipment in their balance statements as assets and lease payments as liabilities.
- The fixed monthly payment of a capital lease is higher and ends up being comparable to an equipment loan.
- The lessee has the option to depreciate the equipment’s value.
- True Lease/ Operating Lease/ Fair Market Value Lease
True leasing requires a company to make regular monthly payments, which are quite inexpensive. This lease is commonly considered for equipment that requires periodic modifications. Things to consider about true lease include:
- The lessee does not have entire ownership of the equipment.
- The lease length cannot exceed 75% of the equipment’s total life. The lessee has the option to return the equipment or renew the lease with similar or updated equipment.
- The lease payment cannot exceed 90% of the equipment’s fair market value to cover the lessee’s incremental borrowing costs.
These are only the most common types of equipment leases; there are further subcategories. When deciding on the sort of lease, keep your business goals in mind. If you want to purchase the equipment, opt for a capital lease, while an operational lease will keep your monthly payments modest. The better you understand your business demands and a leasing company’s capabilities, the easier it will be to make the best equipment financing option.
If you are looking for a reliable leasing and financing company in Abbotsford, rely on none other than Sandhu & Sran Leasing and Financing. We provide one of the best providers of leasing and financing deals for commercial leasing, heavy equipment, industrial machinery, and truck loans. For more information, give us a call today.
