It is estimated that 8 out of 10 small businesses in the United States lease some or all of their equipment rather than finance it. Whether your business needs automobiles, heavy machinery,or office equipment, leasing provides a certain amount of freedom to operate while keeping credit lines open and getting to test out equipment without investing in it. There are many different kinds of equipment leases that can benefit small business owners, and a qualified lawyer can help you decide what is right for you.
Different Terms and Options in Equipment Leases
When a small business wants to lease equipment, they generally look to a lender who purchases and retains ownership in that equipment, and then “rents” it to the small business at a monthly fee for a certain number of months (often an interest rate is figured into this fee). Once the lease term expires, the small business may have some options, depending upon what was negotiated in the lease agreement:
- Purchase Option – here the small business buys the equipment for fair market value or an agreed upon price when the lease agreement was drafted.
- New Lease – here the small business agrees to exchange the old equipment for a newer model under similar terms.
- Return – here the small business simply returns the item, making payments for any damage beyond] ordinary wear and tear, and the lease agreement completes as anticipated.
When drafting the lease agreement, it is helpful to keep in mind the different types of equipment leases you can negotiated:
- Operating Lease – involves the lessee’s use for a short part of the equipment’s lifetime with the lessor maintaining the equipment.
- Capital Lease – involves the lessee’s use for a most of the equipment’s lifetime with the lessee purchasing the equipment at the end of the lease.
- Finance Lease – involves a lessor who just provides money for the equipment that is purchased from a manufacturer or supplier (like a “middleman”).
Other less common equipment leasing types include leveraged leases, guideline leases and sale-leaseback agreements.
Ensure your business chooses the best lease agreement possible.
At Rob Cohen Law we have years of experience drafting lease agreements for small businesses that work. Call us today for a free consultation to discuss your equipment leasing questions.