10 FREQUENTLY ASKED QUESTIONS ABOUT LEASING
How does a lease work?  A lease is a fixed term, fixed payment financing that allows you the option of returning or buying equipment at the end of its term.Is leasing more expensive?  In general, the more profitable a company is, the less expensive a lease is compared to borrowing the money from a bank or paying cash.  Personal credit rating and numerous other factors determine ultimate cost of funds.

Why would I want to lease?  The four most common reasons given for leasing are that the transaction is simple and fast, that it supplies cash flow, that bank relationships don’t have to be renegotiated and that leasing can be less expensive than cash or other sources of funding.

What types of leases are there?  For tax purposes, leases are either true leases or finance agreements.

What does “Fair Market Value” refer to?  This refers to an end of term option for you to purchase the equipment for its then fair market value.  Equipment condition, market environment and/or mileage all play a role in determining this value.

What is a dollar buyout option?  This refers to a structure, which allows you to purchase the equipment for a $1.00 at the end of the lease.

How does leasing preserve capital?  Leasing is a source (other than taking cash out of your bank) to fund equipment acquisitions.  When cash or working capital is removed from a company, what is also removed is the ability to fund growth.  In all small businesses, “Cash is King” and should be conserved to protect against slow times or kept available for investment opportunities.

Am I able to add deposit & delivery charges to a lease?  Yes, the limit for “deposit” is generally 50% of equipment cost and “soft costs” are generally up to 20% of the cost of the equipment.

What are some examples of companies that lease?  That is easy, each and every one of the “Fortune 500” companies has had or currently has equipment acquired through leasing.  In fact, 8 out of 10 small businesses in the United States lease some or all of their equipment.

How do you calculate the interest rate of a lease?  The only correct way to compare leasing with borrowing from a bank or borrowing cash from another source is the after tax impact on the balance sheet of the business and how that effects the personal tax returns.  Because each situation is unique, please consult your tax advisor.