Equipment leasing and financing helps businesses of all sizes obtain equipment needed to grow. As of 2015, total public and private investment in equipment and software totaled $1.5 trillion, of which $1.02 trillion (over 68%) was financed. Also in 2015, nearly 8 out of 10 (78%) businesses used at least one form of equipment financing (equipment leasing/loans/working capital) when acquiring equipment (this number excludes credit card use). The flexibility, speed, tax benefits, and low out-of-pocket costs that equipment leasing/financing offer are some of the major reasons so many businesses turn to equipment leasing companies to acquire equipment.
What is an Equipment Lease?
An equipment lease is essentially a finance agreement made between a lessor (owner of the equipment) and lessee (entity renting/leasing the equipment). The lessee agrees to rent the equipment from the lessor for a set period of time referred to as the term. At the end of the lease term, the lessee may have the option to purchase the equipment or return it and start a new lease with new equipment. Typical equipment leasing end options include $1 buy-outs, 10% balloons and FMV (fair market value) residuals.
Equipment Leasing Calculator
Try our equipment leasing calculator to quickly and easily estimate your monthly equipment lease payments for 36, 48 and 60-months terms. The equipment lease calculator will allow you to better budget for your new/used equipment purchase and will let you see just how much equipment your business can afford. After calculating your lease payment, you can proceed to the lease application with a simple click of the mouse. Custom calculators are available to our vendor leasing partners.
Equipment Lease Vs Finance
What’s the difference between an equipment lease vs an equipment finance agreement? It all comes down to ownership. Under an equipment lease, the equipment is SOLD TO and is legally owned by the bank or equipment leasing company. The owner of the equipment is known as the lessor and they rent the equipment back to the lessee for a set term. At the end of the term, the lessee may choose to exercise a purchase option which would then transfer ownership of the equipment to the lessee. Larger companies that require off balance sheet financing often opt to finance equipment on a lease.
Under an equipment finance agreement, the equipment is SOLD TO and is legally owned by the debtor from day one. The equipment financing company (creditor/lender) provides the funding for the equipment, and the debtor makes monthly payments until the loan is satisfied. Under a finance agreement, there is no need to exercise an end option… the equipment is owned free and clear after the last payment is made. Obtaining equipment on a finance agreement is the most popular choice for the majority of small to medium sized business due to the simple language and straight-forward terms.
EQUIPMENT LEASING BENEFITS
Equipment leasing and financing allows traditional “soft costs” such as installation, freight, training, and licensing to be included in the financed amount. This helps to further reduce initial out-of-pocket costs.
Stay Current With Technology
In today’s fast-paced business world, the ability to stay one-step ahead of the technology curve is a must! Equipment leasing allows for some of the most flexible equipment financing terms available, allowing your business to upgrade equipment at set intervals down the road. Equipment leasing will allow your business to better manage cash-flow, while staying current with constantly changing technology.
Depending on your lease end-option, the possible tax benefits that equipment leasing affords can be immense. Qualified equipment lease payments can be expensed in their entirety, as they are made. Other types of leases and Equipment Finance Agreements qualify for IRS Section 179 accelerated depreciation, meaning you can expense 100% of the equipment cost up to $500,000 the first year the equipment is placed in service.
Minimal Cash Upfront
Lets face it… cash is king! Equipment leasing/financing allows you use of capital generating equipment, without the huge cash outlay associated with a cash purchase. Typically, only the first month’s lease payments are taken in advanced. Compare this with the traditional 15% cash down, or compensating balances often required by banks to initiate loans and credit lines.
Given the current economic environment, the luxury of having long-term fixed payments can give you and your business much needed peace of mind. Equipment leasing payments are fixed for the entire term and will not change with constantly fluctuating interest rates.
Speed and efficiency matter, and WB FINANCIAL is able to approve the vast majority of equipment financing and lease requests within 24-hours. This is especially helpful when a company is replacing a piece of broken/outdated equipment, or when new equipment is needed for a project or job. Our streamlined application, documentation and funding process gets you the equipment you need FAST!
EQUIPMENT FINANCING AGREEMENTS
Want to finance your next next piece of equipment, but for whatever reason do NOT want an equipment lease? In this case, WB FINANCIAL can approve and document on an EFA (Equipment Finance Agreement). The EFA contract is preferred by some small business owners due to the plain and simple documentation and invoicing. The invoice for the equipment is both “SOLD TO” and “SHIP TO” the end-user, rather than being “SOLD TO” the bank on an equipment lease. Ownership is with the end-user from day one, and there are no end-options to worry about at the end of the term. All warranties, rebates and upgrade options are in the customer’s name.
EQUIPMENT LEASING STRUCTURES
With a “plain English” purchase option, the lessee must purchase the equipment for $1.00 at the end of the equipment lease term. The $1.00 (or $101 for tax purposes in some stateS) purchase option is also known as a “full payout lease” or a “disguised purchase.” This is an ideal option for business that KNOW they would like to own the equipment at the end of the lease, with no additional monies due.
A “PUT” (balloon), is a pre-determined end-option based on 10% of the original financed amount. This allows the lessee to enjoy lower payments through the term of the lease, while still giving them the peace-of-mind knowing they still have a GUARANTEED end-option amount. This is ideal for businesses that know they want to own the equipment at the end of the lease term, but want to enjoy lower monthly payments throughout the contract.
An equipment lease structured with a FMV purchase option is perfect for any company seeking the MAXIMUM tax and accounting benefits that an operating lease can provide. Often times, the entire monthly lease payment can be deducted as an operating expense. This can greatly reduce tax liability at the end of the year. A business with a FMV lease has the option to purchase the financed equipment at the end-of-lease, at its current fair market value. FMV equipment leasing allow for the lowest monthly payments.