Types of Leases

True Lease or Operating Lease

• What it is good for: Used with equipment that rapidly depreciates or becomes obsolete in a short period of time.
• How it works: In a true or operating lease, the leasing company retains ownership of the equipment during the lease. True or operating leases typically have no predetermined buyouts; customers usually classify these payments as an operating expense.
• Benefits: Lower payments and typically the most tax-friendly form of leasing, Additionally, true or operating leases offer three choices at the end of your lease:
  1. return the equipment to the leasing company,
  2. purchase the equipment at its fair market value or option amount, or
  3. extend your lease term.

Finance Lease or Capital Lease

• What it is good for: If you plan on owning the equipment at the end of the lease.
• How it works: The full purchase price plus interest charges are spread over the length of the lease.
• Benefits: You will own the equipment at the end of the lease for a minimal amount, such as a fixed percentage of the original cost or $1.00.

Skip Lease

• What it is good for: Organizations that need a flexible repayment schedule such as seasonal businesses, agricultural companies, recreational services firms, and school systems.
• How it works: You specify months when no payments are made.
• Benefits: Flexibility to adjust to irregular cash flow.

Sale Leaseback

• What it is good for: Customers who decide that leasing is more beneficial after having purchased their equipment. Sale-leaseback also allows companies to raise cash for other investments or cash flow purposes.
• How it works: The business that has already purchased equipment sells it to a leasing company, which, in turn takes ownership of the equipment and then leases it back to the business. Some  leasing companies require that the equipment be purchased within 90 days.
• Benefits: The sale-leaseback allows you to put money back into your business or into investments that appreciate rather than depreciate.

60 or 90-Day Deferred Lease

• What it is good for: Businesses that need equipment for operation and development that will not immediately generate revenue.
• How it works: A 60 or 90-day deferred lease can be structured as a finance lease or a true lease. There is usually no advance payment required, and the first payment is not due until 60 or 90 days after the lease begins.
• Benefits: The equipment you need can be acquired with little to no money up front and no payments for 2-3 months.

Master Lease

• What it is good for: Leasing additional equipment over a certain period of time.
• How it works: Separate lease schedules are created to accommodate the addition of equipment over that period of time. The master lease governs the basic terms and conditions. Each schedule may include different end of term options and different lease lengths but all will come under one "Master Lease."
• Benefits: Acquiring additional equipment is made more convenient.

Step Up Lease

• What it is good for: Businesses whose financed equipment will become more profitable over time.

• How it works: Payments increase according to a regular schedule over the life of the lease.

• Benefits: Payments can be differed to match cash flow.

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Last modified: April 17, 2010