About Leasing
Just a few decades ago, most equipment was financed through bank
loans. Today, leasing accounts for the vast majority of equipment
financing.
A Lease is a contract in which the owner (Lessor) permits the user
(Lessee) the use of the equipment for a period of time (Term) in
exchange for a series of payments.
There are, broadly speaking, two types
of lease contracts. The primary differences involve tax savings
and transfer of ownership.
Equipment vendors also provide financing to support their sales
efforts. There are some pitfalls with
vendor financing that you should be aware of.
There are significant tax savings to leasing. The tax benefits
for a typical capital lease can be calculated for your equipment
purchase price using our Tax Savings Calculator.
(You should consult your tax professional for detailed advice.)
Comparison of Capital and True Leases
| |
Capital Lease |
True Lease |
| Residual Value of Asset |
Payments cover the total cost of the asset. |
Payments take residual value into account. |
| Lease Payments |
Higher than a true lease. |
Lower than a capital lease. |
| Maintenance and Insurance |
Responsibility of Lessee. |
Lessor may require higher cost insurance or maintenance. |
| Ownership |
Lessee may acquire the asset. Price usually below market value. |
Asset returned to Lessor at end of lease. |
Early Termination
(during lease period) |
Usually not allowed. |
Sometimes allowed. |
| Primary Lease Period |
Most of the asset's useful life. |
Shorter than a capital lease of the same asset. |
| Secondary Lease Period |
At a nominal rental. |
At market cost based on the asset's current market price. |
|
