WHAT IS A LEASE?
In its basic form, a lease is a contractual agreement between the lessee (the customer) and the Lessor (the funder). The funder purchases the equipment from the supplier of choice of the customer and in turn leases it back to the customer at fixed, regular payments for a term with an option at the end.
HERE ARE SOME FAQ'S ABOUT LEASING
What is a typical lease term?
Typically a lease can be set-up with a term of 24 to 60 months.
Isn't it more expensive to lease than borrow?
The cost of borrowing will be determined by the entity applying for the money. The stronger the applicant the lower the cost of borrowing.
What is the purchase option at the end of the term and what are my options?
To qualify as a lease, there must be a purchase option at the end of the lease term. This amount can very from $1 to a percentage of the initial value of the equipment (usually 10%).
Isn't my company better to pay cash or borrow rather than lease?
Borrowing to purchase equipment makes the transaction a capital expense that allows the deduction of interest, depreciation and insurance costs. Cash purchases are treated similarly without the interest deduction. Leasing usually allows a full expense deduction for the monthly payment including taxes. This enables writing down the purchase over the term of the lease. Additionally, retaining cash in your business means that inventory and other necessities can be bought. Finally, cash in the bank earns interest - interest that can be used to make lease payments.
Does the equipment have to be purchased from a vendor?
No - the equipment can be purchase from a private seller just as easily as a registered vendor.
What are the penalties to pay out a lease early?
The usual requirements for early pay out of a lease are balance of payments (including taxes) plus the purchase option (plus taxes).
When most people think of leasing they think of truck, trailers, forklifts, excavators, computers. But leasing can included more abstract assets, such as software, point of sale systems, and much more.
What products and services can be leased?
Are there any tax advantages to leasing equipment rather than buying for cash or borrowing?
Equipment leasing offers the following tax advantages: a) monthly payment is a deductible expense, b) faster tax write off than capital cost allowance, c) improves cash flow, and d) lower cost of acquisition than borrowing or paying cash