By curious business owners I get asked this question a lot: "What kind of leases are there? What's the dang difference?"
So, finishing up some paperwork I thought I would just riff a little bit about this topic...
The Operating Lease is typically the more favored leasing choice for small to mid-size businesses. This breaks down in the way that the Leasing Company retains ownership of the equipment, and the monthly payments for the business owner are considered a monthly operating expense and fully tax deductible. Business owners like this because it keeps their balance sheets light in the knickers, and money is able to flow where needed.
The Capital Lease is like the friendly step sister to a typical loan... Lots of similarities between the two. Here, the equipment is considered to be "owned" by the business, it shows up on your balance sheet as an asset - and as such the business assumes some of the risks and some of the benefits of ownership.
Buy-out Options: Behind Door Number One we have The FMV option. Fair Market Value! This means that you can easily purchase the equipment at the end of your lease terms for its "Fair Makrket Value" ... Could be hundreds of dollars, typically nothing insane. Behind Door Number Two we have the $1 buy-out option. This is simply, at the end of your lease - the equipment can be yours for merely four quarters.
Lots of things go into WHY you should choose exactly which lease, with which Buy-out option... Make sure you have someone trustworthy that you can bounce your thoughts off of.
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7 comments:
Interesting article, I will be reading other peoples comments on this, because its a question I would like answering
It is definitely an important decision. Please feel free to leave some specifics, so I can weigh in and help you make the right choice for yourself
Leasing can be very confusing and you are setting out to clear some of it. Well done! There is money to be made with the right lease too.
It is quite complicated - thanks for trying to clear some of the fog
I am so glad that some of you find this informative. I have helped so many businesses through leasing - so I am trying to bang the drum and spread the word.
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