What is the difference between financing and renting?
Equipment leasing enables you to acquire equipment for your business without using up your working capital or business credit line. At the end of the lease term you can either return the equipment back to the lease company or pay the buyout amount and own the equipment out right. By renting you will never own the equipment.
To our knowledge, there are no present financial institutions that will “rent” Lasers or a CNC Router equipment.
Is a down payment required, and if so how much?
That depends if you are a start-up or not. In some cases a down payment can be a requirement leasing equipment. Typically the minimum down payment amount would be equal to two monthly lease payments. A specific down payment amount will be available once the leasing application has been submitted. If you have been in business for 2-years and have good credit, lease companies may waive the down payment.
Can the lease be paid off early?
All leases are structured on a per application basis. It is not customary for a lease to be paid off early. We recommend checking with the leasing company about the final terms and conditions.
What types of leases exist?
Yes, there are two different types of leases.
- The first lease type is called a 10% purchase option. The lessee may purchase the equipment at the end of the lease at a a fixed price equal to 10% of the original price.
- The second lease type is called a $1 purchase option. This provides the business the ability to purchase the equipment for $1 at the end of the lease term.
What are the tax benefits of each option?
In general, the payment on a “true” lease (fair market value or 10% buyout option) can be treated as a fully-deductible operating expense, whereas the interest and depreciation can be deducted on the “finance” lease ($1.00 buyout option). Be sure to consult with your accountant to determine which option provides the best tax benefit for your company.
Why lease when I can borrow from the Bank?
Disadvantages of bank loans may include the loan process (requirement for a business plan, loan committees, etc.) and stricter documentation and fiduciary guidelines resulting in slower approval and additional charges.
Other disadvantages often include the requirement for additional collateral (both business and personal), substantial down payments, variable interest rates and an unwillingness to finance soft costs such as installation, software, training and shipping. In addition, a lease will allow you to maintain your credit lines with the bank or conserve your cash for other operating requirements.
What is the Definition of a New Business Startup?
- Companies that are just starting out.
- Companies that have been established for less than two years.
- Companies that have been established for over two years, but have been under new ownership for two years or less.