Looking for ways to preserve your companies working capital? Unsure of how you will buy the new equipment your company needs to stay competitive, and still have enough to expand your company? Equipment leasing can do that for you! Equipment leasing allows you to buy the new equipment you need quickly and with a very low down payment. By making the monthly payments you are getting the use of the equipment without having to have paid for the equipment upfront. Thus allowing you to put your working capital to better use, like advertising your business or expanding your work force.
There are a few specific details about leasing for small business that you need to know about before you make your decision, but most business owners find that a lease can turn into a much better business decision than a purchase. To understand whether or not leasing makes sense for your business, you need to understand the three different types of leases that are most commonly found in the business world. These three types of leases are known as $1 purchase option lease, 10% purchase option lease and fair market lease.
The $1 Buyout Option
The $1 purchase option lease is one of the most common ways that businesses choose to acquire new equipment. This is basically the lease that you should choose if you know that you are going to be using the equipment for a long while after the lease is over. You are going to be giving yourself the option to buy the equipment for $1 when the lease is over. The monthly payments on this kind of lease are a bit more expensive than the fair market value lease because the lessee is paying for all of the equipment costs in this deal. You may be able to take advantage of additional perks such as depreciation of the equipment for tax purposes, just speak with your companies accountant to make sure this lease option is viable in your state.
The 10% Purchase Option
The 10% purchase option is quite similar to the $1 purchase option leasing arrangement, and the only difference is that your small business is going to have to pay for 10% of the original cost of the product instead of just $1. This is basically the middle of the road option for leasing when it comes to pricing. This type of lease also comes with the ability for your small business to get some tax relief through equipment depreciation or interest expense benefits.
The Fair Market Value (FMV) Option
Finally, the fair market lease is another one of the most common types of leases used by small business owners. This is considered by some to be the best option because of the amount of flexibility that comes with the agreement. You will be paying the lowest rate out of the three different types of leases on a monthly basis. You will also have the ability to return the equipment, buy the equipment or continue your lease agreement when the original lease is complete. In some cases you can even return the equipment you currently have and upgrade to something new.
Different small business owners are going to come to different conclusions about which leasing options will work best for them. You need to take some time to review the three different agreements and find the one that fits the needs of your small business.