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How equipment Leasing Works With Us

Leasing grants the business owner access to needed equipment without buying it. Businesses make regular payments in exchange for the use of the equipment. In many cases, leasing equipment allows businesses to upgrade equipment frequently. Other leases have a bargain purchase option that allows owners of the asset to transfer to the borrower at the end of the term.
There are two types of leases as classified by the Financial Accounting Standards Board (FASB): the capital lease, and the operating lease. A capital lease is any lease with a bargain purchase agreement that transfers ownership to the business owner at the end of the lease. An operating lease grants the business owner temporary use of the equipment, with no transfer of ownership at the end.
Equipment leases typically fall into one of two categories:
A capital lease is a rental contract in which your business receives all the benefits and drawbacks of owning the equipment. A capital lease is more common than an operating lease and is best suited for acquiring expensive pieces of equipment that you intend to keep as a long-term asset.
An operating lease is a rental contract in which your business does not receive the benefits of ownership. An operating lease is typically used when financing equipment with a short shelf-life, or equipment that you plan to replace frequently or at the end of the lease.

Which lease class you ultimately choose comes down to whether or not your business intends to own the leased equipment at the end of the lease, and whether payments made during the lease make up a majority of the value of the equipment. There are also tax and accounting considerations you will want to be aware of. To learn more about the two classes of the lease, read our article on Capital Leases vs Operating Leases.
Equipment Lease Qualifications
In general, it’s not too difficult to get an equipment lease because the equipment backs the lease. We interviewed Gerry Egan, executive director of the National Equipment Finance Association, for this article. He said that the approval decision will primarily depend on a combination of five factors.
The five factors cited by Egan are:
1.  Your credit score (660-plus on average, check yours for free)
2.  Business history
3.  Type and size of the lease
4.  Length of the lease
5.  How well equipment holds value
When you apply to lease equipment, your lease rate will vary depending on your credit score. Anything above a 660 is considered a good score. In most cases, you’ll need at least two years in business to qualify. Newer or start-up businesses may still qualify, but an excellent credit score will be required, and the interest rate is likely to be higher.
Equipment Lease Rates, Costs & Terms

A lease is not a loan, so you don’t pay “interest” in the typical sense of the term. However, the equipment leasing company has to make money in some way, and you will have to pay for the right to use the equipment. Effective interest rates on an equipment lease typically range from 6% to 30%, but the average is somewhere between 6% to 16%. The length of the lease will usually vary from two to five years but won’t exceed the useful life of the equipment.
The cost of leasing will depend primarily on the same five factors that are used to make the credit decision:
1.  Your credit score (660-plus on average, check yours for free here)
2.  Time in business
3.  Type and size of the lease
4.  Length of the lease
5.  How well equipment holds value
Lower credit scores―less than 660―shorter-term leases, and leases on less valuable equipment all tend to be more expensive. Higher-cost equipment and leases to established companies will generally have the lowest leasing costs.
Monthly Lease Payments
One of the first things businesses want to know when leasing equipment is the size of their monthly payments. Lowering your monthly payments can increase your business’ cash flow. Many factors go into figuring out what your monthly payment is going to be, and it varies by lease.
To learn more about what your monthly payment might be, you can check out our equipment loan calculator.
Equipment Lease Tax & Accounting Treatment
Tax treatment is an important factor as different types of leases receive different tax treatment. In addition to tax treatment, you will want to consider how the equipment will be treated on your business’ balance sheet.
Capital leases―also classified as $1 buyout and 10% option leases―are typically much friendlier to your business from a tax standpoint, allowing you to depreciate the asset. This is not possible with the fairest market value (FMV) leases, which tend to be classified as operating leases. For questions related to your business, we suggest talking with a tax professional.

Gerry Egan, executive director of the National Equipment Finance Association, explained that the advantage offered by Section 179 is accelerated depreciation. Instead of taking a partial write off of the equipment each year, you can deduct the entire cost of the equipment―up to $1 million―in the year your lease begins.
In many cases, the amount you save in taxes by using Section 179 will exceed the total of your first year’s lease payments. Mark French of Crest Capital told us that small 
Equipment leases come in several variations with key different businesses can save up to 35 % more using Section 179 than they can by deducting monthly lease payments on an FMV lease.
Types of Equipment Leasesences based on desired payments, term length, and whether the borrower wants to keep the equipment at the end of the lease. Some of these include the $1 buyout, 10% option, 10% purchase upon termination (PUT), and TRAC lease. Contact Us for more information