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Who is equipment leasing good for?

Companies that have to make major investments in equipment and do not want to tie up large sums of money, companies that need to change their equipment frequently, and companies with good cash flow that can easily afford the monthly payments but do not have the money to lay out for the purchase of equipment.


How are lease payments determined?

The monthly payment is based on the risk factor associated with the industry, time in business, cost of equipment, and the terms requested by the lessee. The initial terms of a lease are normally 12 to 60 months and will also impact the payment terms. Leasing rates can be determined by factors such as:

 

  • The cost of the leased asset.
  • The lease term.
  • The credit strength of the lessee including their history of other debt.
  • The financial strength of the lessee including term debt requirements and available cash flow.

Is a down payment required for a lease?

A security deposit, normally equal to one or two monthly lease payments, is generally needed. This differs from a down payment since the amount is generally much less. It is a true deposit, which can be applied to the purchase price of the equipment at lease-end, or returned if there are no other payments due.


What happens at the end of the lease?

What happens at the end of a lease is up to you (the lessee). You decide at the beginning of the lease which type of lease you want. You may choose a lease that gives you the flexibility of waiting until the end of the lease to decide. Generally you will have the following choices:

 

  • Return the equipment at the end of the lease with no further obligation. Assuming the equipment is in normal working condition; any security deposits paid will be refunded back to you.
  • You may trade in or upgrade the equipment for a lease on newer equipment. You may effectively get the value of a trade-in on equipment you didn’t even own.
  • You may purchase the leased equipment. In the case of the so-called “$1 Buyout” lease, you will take ownership for $1.00.

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