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We have never provided a financing option to our customer before. But ever since we made the option available, more people are purchasing through financing...site traffic has increased greatly from their marketing campaigns…

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Equipment Leasing

Equipment leasing puts equipment, vehicles, and software in the hands of small business.

The long standing trend amongst business owners across most industry verticals is to acquire their equipment through leasing and financing. Over the last decade 80% of businesses have leased or financed 30% of their assets acquired. The primary difference between equipment leasing and equipment financing is in the ownership of the collateralized asset during the term of the agreement which yields different options and benefits for the purchaser.

Equipment leasing creates a contractual relationship between a Lessor (source of funds) and Lessee (customer). The contract states that the Lessor will purchase the equipment and grants use of the asset for a specified term in exchange for a predetermined monthly rent payment. The contract should also outline in the body or as an addendum/rider the details of the end of term purchase option if transfer of ownership is desired.

Equipment financing is more comparable to a traditional loan structure where payment is made on behalf of or through the customer to an equipment seller. A standard equipment finance agreement will outline the change of ownership upon payment to the customer during the duration of the loan. The lender (source of funds) will then file a lien or comparable on the asset to show first position.

Equipment Leasing End of Term Options

There is a sliding scale of consideration when deciding on an end of term option that will directly affect your monthly payment. Even though the cost of funds is the same, monthly payments will be the highest with a $1 purchase option and lowest with a fair market value lease; however, the inverse will be true on the amount to be paid at the end of the term to transfer the ownership from the Lessor to the Lessee.

$1 End of Term Lease: Payments are based on 100% of the purchase price and therefore yield a higher monthly payment than the other lease programs. If the acquisition has a long useful life and ownership is desired after the lease term, this is the most common option. Purchase of the equipment is made at the end of the term for $1.

Fair Market Value Lease: The FMV lease program provides the most flexibility and the lowest monthly payments which are often times 100% tax deductible. At the end of the term you have the option to purchase the equipment for the fair market value, return the equipment and upgrade, or renew the lease for continued use.

10% End of Term Lease: Payments are based on 90% of the purchase price and marry the benefits of the $1 and FMV lease programs. Payments are lower than the $1 purchase option, and you retain the flexible end of term choices of the FMV program. If you choose to purchase the equipment the price is fixed at 10% of the original value.

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Why Companies Use Equipment Leasing and Financing

The primary reason why businesses use equipment leasing and financing to acquire the equipment, vehicles, or software they need is the ability to allow the purchase to pay for itself over time. Often, 100% financing options are available making the ability to lease or finance more attractive to buyers. Low acquisition cost coupled with enticing tax benefits and savings make the benefits of equipment leasing and financing one of the most popular methods of capital purchase.

How Companies Qualify for Equipment Leasing and Financing

Business Credit: Contributing factors that are considered when reviewing business credit usually include some or all of the following: time in business, ownership history of the company, employee size, annual sales, and/or Dun & Bradstreet Paydex scores.

Ownership Credit: Credit reviews for companies that are considered closely held (less than five primary owners) almost always include at least a cursory review of the personal credit history of the ownership (regardless if a personal guarantee is required on the transaction).

Borrowing History: For transactions under $200,000 a comparable borrowing reference may be reviewed in lieu of a full financial disclosure package (two years tax returns and/or financials). The comparable borrowing reference gives a lender historic perspective on how the customer has paid in the past.