Leasing equipment is quite similar to leasing a vehicle in the sense that you are essentially “renting” the equipment. In general, you will pay a flat monthly fee to an equipment leasing company to use the equipment for a prolonged period of time. However, the ownership remains under the equipment leasing company’s name. In many cases, a purchase option is available at the termination of the lease so that you can acquire ownership of the equipment.
Here are some basic steps on how to lease equipment:
1. Research your equipment purchase. Before selecting an equipment leasing company, it is vital that you know what type of equipment you want to lease including the make and model. It is also helpful if you come prepared with a quote from the equipment vendor because equipment leasing companies will often ask for this when submitting a deal. In addition, be able to explain why you need the equipment and what you plan to use it for. This information will help the equipment leasing company determine if you qualify for financing.
2. Research equipment leasing companies. Every leasing company will require an application to uncover more information about your business practices and credit history of guarantors. Each company is different so be sure to do substantial research to pick the best one to adhere to your business. In most cases, you will need to provide the names of all the owners/guarantors, their social security numbers, company history, a federal tax ID, and basic contact information. As soon as you have gathered all of this information you will be ready to apply.
3. Apply. After conducting all of your research and putting together basic information, you will be ready to apply for leasing and financing. Some companies have an online application and others require you to fax or email it in. The application process is generally pretty quick and some companies will respond to you the very same day you apply. Be sure to include your SSN in your application so the equipment leasing company is able to pull your credit file; if you decline to do so you application cannot be processed. In addition, larger ticket items will probably require more time to process, so be patient when waiting to hear back about the lease.
4. Select a term. If you are approved for financing, you will need to select a term for leasing. In general, leasing terms fall between two and four years. There are certainly other options available although two to four year terms are usually the easiest to acquire. Different types of equipment will require different lease structures, so prepare to be flexible when working with your leasing company. The longer the term, the smaller the payment. Be sure to pick a term that works in line with your company’s cash flow so you don’t have to allocate all of your resources in one place.
There are three standard end-of-term options:
1. Fair Market Value (FMV): Purchase your equipment at the fair market value price at the end of the lease.
2. 10% Purchase: Purchase your equipment for 10% of the purchase price at the termination of the lease.
3. $1 Buyout: Purchase your equipment at the end of the lease for $1.
5. Sign the lease. The final step is to sign your lease contract and commence the lease. After completing all of the preceding steps, carefully review each lease document and sign the lease. If you have any questions or concerns about anything pertaining to your lease or equipment, do not hesitate to call your equipment leasing professional.