Businesses need strong financial support to withstand in the market. It is great to go along with equipment leasing, if a business owner cannot be able to purchase the equipment. Equipment leasing refers to a rental agreement, based on long term payments to acquire any kind of equipment. This equipment should be maintained with great care, and the lease term does not reach up to the equipment’s total life. The equipment can be purchased or returned to the lease provider, if the lease term has come to the end.
Why the Equipment leasing is important?
The main reason to acquire equipment leasing is the provision of nominal upfront costs. It allows flexible monthly payments and most of the time, no down payments. Unlike, a regular bank loan which requires a conventional down payment. Leasing allows to maintain a sound working capital for the other requirements of business and minimizes the pressure of loan repayment.
The other important consideration to acquire equipment leasing is the protection against an obsolescence. It is essential to determine the valuable life of equipment while setting the lease. Select the length of a term which will help the lessee to upgrade the new equipment before the expiry of an old piece.
Another great thing about equipment leasing is the reduction of taxes. It depends on the lease structure. A lessee can deduct a full lease payment as the business expenses. A tax professional can help a lot to understand about leasing significances.
Kinds of Equipment Leasing:
Usually the lessors have many different names for kinds of equipment leasing, but the two most basic types are True lease and Finance lease.
Understanding Finance lease:
A Finance lease is also called conditional lease, dollar buy out a lease or capital lease. This type of long term equipment leasing is significant for such businesses, which are interested to keep the equipment till the end of a lease. The lessor usually wants to earn some profit, and that is why lends the money on a certain markup or interest rate. A lessor also transfers all the rewards and risks to the lessees and avails an amount of secured repayment against this investment.
Another important thing about the Finance lease is the binding of in a written agreement that a lessee has to complete the agreement period and responsible for all the maintenance, insurance and repairs of equipment, unless it has mentioned in an agreement. The lessee also gets the authority on equipment after the successful completion of the agreement.
Understanding True lease:
True lease is also called an operating lease, fair market value lease or a tax lease. In this type of short term finance leasing, if the lessor wants to earn profit, then it is a must to provide the assets on hiring others for the usage. A lessor retains all the rewards and risks in a true lease and also responsible for the maintenance, insurance and repairs of equipment. A lessee can withdraw the agreement as well against quite small penalty and does not have any binding on purchasing equipment at the end of the lease.

Equipment leasing

Author: DonKluger69

This author has published 11 articles so far. More info about the author is coming soon.