Common Types of Equipment Lease Agreement

Article Written By: Eric LeRiche

At times your business might need equipment. But the problem is that you don't have enough capital to buy the equipment. What should you do at that time? - take a loan from the bank or opt for equipment leasing? The best option is to take the benefits of equipment leasing.

Equipment leasing is in fact a very popular and viable option for businesses both small and large. Equipment leasing has many benefits. It preserves cash. You simply do not have to make huge down payments. Moreover it is a much simpler option than banking finance. With equipment leasing your business can have modern and up-to-date equipment at all times. You only have to pay for the equipment as you use it. You can also get tax benefits because of equipment leasing. So, are you interested in contacting any equipment leasing company?

The terms of a lease agreement varies according to the financing company. The structure of lease is however generally affected by transaction size, credit rating, industry, asset type and location. The lease type that you opt for should match the agreement to the cash flow needs, equipment requirements and overall business goals.

You should however remember some points while considering the lease agreement. In most lease agreements you will be responsible for equipment you possess as long as the equipment is used by you. Many leases may require you to be responsible for burden of insurance, taxes, interest and maintenance. When the lease ends, you can buy the equipment at its market price, return it, continue leasing or lease the latest equipment available.

There are two common type of lease agreements - finance and operating leases. Operating lease is also called fair market or true lease where the objective is not to pay for equipment. This kind of lease is popular with companies that continually replace or update equipment. These companies use the equipment without any ownership. They return the equipment at the end of lease agreement and also stay away from any technological obsolescence.

Operating lease generally results in lowest payment of financing alternative. It is an outstanding approach for bypassing the capital budgeting restraints. This type of lease agreement usually qualifies for the off balance sheet treatment and results in good return on asset because of a low asset base. It may also result in high reported earnings in early years of the lease agreement.

Finance lease is also called capital lease. It is best for companies which want to own the equipment after the termination of lease agreement. These companies generally use the advantages of equipment leasing for acquiring it.

This type of lease is a full payout agreement and is non cancelable. Here the lessee is responsible for insurance, taxes and maintenance. Finance lease is appealing when lessee expects the residual value of equipment to be quite high or wants tax advantages of ownership. Lessee buys equipment when the lease agreement ends at pre set amount. Finance leaseandrsquo;s term tends to be quite long almost covering the valuable life of equipment.

About the Author

Eric LeRiche is author of this article on Heavy Equipment Leasing.

You Can Link Directly to "Common Types of Equipment Lease Agreement" by using the url:
http://www.allbestarticles.com//finance/leases-leasing/common-types-of-equipment-lease-agreement.html

This Article Has Been Published on Fri, 7 Aug 2009 and Read 1049 Times

Find All Best Articles at http://www.allbestarticles.com

Rating: Not yet rated

Comments

No comments posted.

Add Comment

You do not have permission to comment. If you log in, you may be able to comment.

Related information on Leases - Leasing

Share Accommodation In Brisbane Is A great Way To Save
The Leasing Guide -The Several Types Of Leasing Available
Considering leasing? Here is some guidance for selling your old car
How best to keep your new vehicle lease looking like new
Car Leasing And Contract Hire
Car Lease Finance A Great Option For Anyone
Advice On Leasing or Buying a Car
Warehouse Rental in Miami FL: Where to Choose
Common Types of Equipment Lease Agreement
Why you need to consider Equipment Leasing?
Your ideal option for getting equipment leasing loans
Tips on equipment leasing
Equipment Leasing the Benefits
Personal Car Leasing
Why are cars so important to the British