As soon as you are investing in a piece of machinery, it will become only a matter of time before the latest version comes out, and this makes yours obsolete or inferior as buying and maintaining equipment is quite expensive. Many small business owners choose to lease rather than own due to the high costs that are involved in owning and operating equipment. This makes it a necessity to understand equipment lease types.
There are a lot of advantages involved with leasing which is generally not offered through owning something. This includes the low monthly payments too. The service agreements or service add-ons offering the peace of mind for the business users and negating the need for in-house technicians are all included under the commercial equipment lease option.
Leasing might be an option to consider if your business needs new equipment or technology and you are not able to afford it. Typically with a multiyear period of time instead of buying them all at once, leading lets, you make the smaller monthly payment. You might return the equipment or buy it for a cost that factor in the appreciation and how much you paid over the life of the lease all at the end of the lease term.
The following are the types of equipment leases that are available:
The lease agreement in which the owner allows the user to use an asset for a time period that is shorter than the life of the asset is what an operating lease is which is one of the major types of equipment leases. For a time that is less than one year is what these leases usually meant for. Tourists renting a car, office equipment, contracts for hotel rooms, vehicles, etc are some of the examples of operating leases. Over an agreed period of time in exchange for some fixed regular payments, the owner gives this right to the user. Under this equipment lease type, the ownership of the asset remains with the owner of the asset. Under the operating lease, the ownership does not pass to the user. During the lease period, the user only gets the right to use the asset. At the option of the user of the asset, operating leases have the option for cancellation.
Under the lease as operating expenses, the lessee treats the payments that are made by him. They are also not recorded in the balance sheet as an asset since they have got them all under the operating leases. In the balance sheet, the lessee even does not treat the operating leases as a liability. An operating lease is not a debt at all. The depreciation for the assets that he gets to use is not recorded by the user.
Capital leases are very popular with high-value equipment such as ships, plants, machinery, aircraft and the rest as they are long-term in nature. The ownership of the asset passes to the user of the asset, which is the lessee in a capital lease. After the lease period, the lessee becomes the owner of the asset. This is when the lessee would be treating this lease as a loan. The present values of all the future payments which the lessee needs to make are included under the liabilities as loans for this reason. The owner of the asset, the lessor appears in the lease rentals in the income statement as expenses. Under the asset column, the market value of the asset that is acquired is recorded in the balance sheet.
One of the main equipment lease types is the leaseback. The seller of the asset leases it back from the buyer of the asset within an agreement of this kind of lease. The seller hence becomes the lessee and the buyer becomes the lessor under this type of lease agreement. The companies entering into the leaseback agreements are when they are in requirement for cash that is invested in a fixed asset that is still needed for the company to operate most of the time.
These are the types of equipment lease options that can give you're the best idea for going with one. This can assist your business a lot as well as save money in the long term.