Equipment Leasing 101:
Choosing Between a Fair Market Value and $1 Buyout Lease
Equipment Finance 101. This information attempts to explain typical lease purchase options available to a customer.
Machinery leasing – you own the machine at the end of the lease !
How Leasing can save you money !
a) It keeps capital in your company for daily needs, versus using it only in the purchase of equipment.
b) Creates a more accurate budget planning and eases cash flow needs.
c) Increases income by having new machinery and you now have the ability to
keep more work in house.
d) Keeps you in control of delivery schedules, this helps you continue to have happy customers.
Basically there are three (3) types of equipment lease/purchase types. They basically just change the ending payment of your lease, secondly is the lease length called the term. The next item is your buyout option (3): Fair Market Value (FMV), Balloon Lease and $1 Buyout (or $1 Purchase Option). Remedy recommends the $1.00 buy out plan.
Lease terms range from 12 to 60 months.
- A machine lease: is terminology for a machine loan, and is very different than an auto lease. Auto leases have a negative connotation, where machine leases do not.
- Lease/financing companies have very simple paperwork, in many cases the application is only 1 page long.
- A lease approval is normally faster and requires less paperwork than a bank loan.
A lease is normally approved in 24 hours. Bank Loans can take weeks. Typically banks require a substantial down payment.
- Machinery leasing provides many tax advantages to the buyer of the machinery. You will need to ask your tax adviser how this will aid you.
Key items to Consider in your Lease Decision:
The three (3) Basic types of leases, and how they can help with your budgetary needs.
- A (FMV) Fair Market Value, buyout allows the customer to use the equipment for a designated number of months to the end of agreed lease length/term. The customer may to continue to lease the equipment, return the equipment and upgrade to new equipment or purchase the equipment at a determined fair market price for the equipment. We at ECEDM do not normally recommend this type of lease to our customers because the monthly savings are very small when compared to a standard $1.00 buy out lease.
- A Balloon lease. 10% 15% 20% balloon options. In this lease style your payments are lower during the term of the lease. At the end of the lease term 12-60 months, you are requested to pay the balloon payment. This is a one time large payment, after receipt of this payment you then take ownership of the equipment.
- $1 Buyout/Purchase lease. This option (Recommended and the most popular) will have a slightly higher monthly payment than any buy out style of lease. However this type of lease is selected by customer’s who want to own the equipment at the end of the lease for only $1.00. This lease type is also is known as a capital equipment lease. Most of the time, the equipment ownership is transferred from the lessor/you ( Equipment Finance Co.) to the lessee (Customer) when the last payment is made.
A lease has a fixed rate and your monthly payment will not fluctuate during the lease – unlike other financing options such as credit cards or some bank loans. These “other” financing methods can also eat away at your operating budget or credit rating.
As a REMEDY Machine customer, our recommended Equipment Finance companies will help you develop a competitive, fixed rate, equipment financing option to match your preferred buyout option and term. Helping you acquire the equipment your business needs without a large upfront down payment or worry of technological obsolescence.
2020 Tax Cuts and Jobs Act:
Most everyone has heard about the 2020 Tax Cuts and Jobs Act signed into law. Many of us are still not aware of the provisions that pertain to us. We recommend that you ask your professional Tax adviser about how this will affect you.