There are many types of leasing agreements that can help your business thrive and grow. The truth is that there is not a ranking that outlines which equipment leases or vehicle leases are better or worse. Instead, different types of leasing agreements can benefit different businesses at different times of their growth, expansion, and challenges. The perfect lease agreement is one that is clear, simple, flexible, and that works for your company. Choosing a leasing company with a variety of leasing options will allow you to tailor a leasing strategy that makes sense. This article will explore three common types of leasing and the pros and cons of each.
Which Type Of Leasing Is Right For Your Business?
Capital Leases
In a Capital Lease agreement, the lessee assumes all of the risks and the benefits of asset ownership. This type of leasing is most suitable for equipment such as tools and machinery that has a useful life of longer than 5 years. It is often not suited for equipment or technologies that may become obsolete quickly.
Pros Of A Capital Lease
- The Lessee Can Claim Depreciation: The lessee can claim depreciation on the asset as an expense for the company, reducing taxes owed.
- Less Expensive: A Capital Lease allows the lessor to avoid the large expenditure of purchasing the asset outright and capital lease interest rates can be lower than a bank loan. The buyout cost at the end of the lease is pre-determined so there are no unexpected fees.
Cons Of A Capital Lease
- Maintenance Obligations: The lessee is responsible for maintenance and repairs of the asset.
- Negative Debt-To-Equity Ratio: The lease payments of the asset show as a debt on the balance sheet and may create a high debt-to-equity ratio. This can be unappealing to investors if the company is seeking to raise capital.
Operating Leases
An Operating Lease is essentially a rental agreement with the lessor. In this type of leasing agreement, the lessor maintains ownership of the asset and the lessee holds responsibility for the condition of the asset at the end of the lease term. There may or may not be a buyout agreement at the end of the lease term.
Pros Of An Operating Lease
- No Maintenance Costs: Typically, the lessor covers the costs for repairs and maintenance of the asset.
- Easy To Update Equipment: This type of lease is useful when a business needs to update assets at regular intervals.
Cons Of An Operating Lease
- Payments Build No Equity: Because this type of leasing agreement is akin to a rental agreement, payments do not build equity for the business.
- Cannot Count As An Asset: The leased asset cannot appear as an actual asset in the company’s accounting records.
Sale And Leaseback
A Sale-Leaseback agreement allows a company to sell an asset it has already purchased to the lessor and then lease back the equipment at favourable terms.
Pros Of A Sale And Leaseback
- Increased Liquidity: Selling the asset to the lessor can provide immediate liquid capital to cover other essential expenses.
- Maintain Use And Control Of The Asset: The lessee maintains the right to use the asset without any interruption to business operations.
- Tax Benefits: The lessee can leverage the entire lease payment as a business expense for tax purposes.
- Flexible Lease Terms: Interest rates, lease terms, and end-of-term options (buyout, new lease, etc) are all negotiable.
Cons Of A Sale And Leaseback
- Loss Of Ownership: The business cannot claim the equipment as a company asset.
- The Asset Is Loan Collateral: If you default on the Sale And Leaseback terms, you risk losing the equipment your business once owned.
For more insight into the right type of leasing for your company read
What Type Of Lease Is Right For My Business?
The Right Type Of Leasing At First Capital Leasing
As we mentioned at the start, there is no one-size-fits-all leasing solution. The perfect type of leasing strategy is the one that works best for your business. First Capital Leasing in Calgary is a full-scope financial services provider with the knowledge and experience to create tailored financing solutions that meet your needs and the goals for your company. We can help you figure out which type of leasing strategy can support your current operations now and in the future. For easy application and quick approval, fill out our online application. You only need to apply once and First Capital leasing will continue to be your financing partner for all your business equipment needs. Approval can usually be completed in less than 4 hours! If you are ready to explore loans and leasing for your business, call our team at First Capital Leasing at 1-888-251-3644 or fill out our contact form today.
First Capital is the choice leasing partner for all of your business’s commercial vehicle leasing and commercial equipment leasing needs. Read more about the benefits of leasing and the common mistakes of leasing to make the most informed purchasing strategy decisions for your company.
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FAQ
Q: How long will it take to receive payment after you have purchased my equipment in a sale-leaseback agreement?
A: We know how crucial it can be to receive funds quickly after a sale-leaseback contract is signed. Your business can receive payment in as little as 48 hours after all signed lease documents are received by First Capital Leasing.
Q: How does my business explore commercial equipment leasing with First Capital?
A: Our process is simple:
- Choose the equipment and the seller of your choice. Confirm the full asset details, along with the cost.
- Complete our online application, which is instantly submitted to our credit team. Existing customers do not need to re-apply.
- Once approved, a First Capital team member will contact you to discuss your financing options. We will then contact your supplier to arrange for invoicing of the purchase. Documentation is then provided for your review.
- Upon receipt of all required documentation, our funding team will work on payment remittal to the supplier. We can accommodate any prepayment or deposit terms the seller requires.
Q: Is there a minimum and maximum lease amount?
A: The minimum is $ 5000.00 and there is no maximum amount. To get started quickly APPLY HERE.