The right equipment is necessary for the successful operation and growth of any business.
Equipment leasing is an affordable way to get the equipment you need, while preserving/re-directing the use of existing cash resources.
End-of-lease options need to be decided-on prior to signing your equipment lease agreement.
3 common end-of-lease options are discussed below:
Get new equipment.
- Keeps your business working with the best equipment and tools.
- The usual due diligence on the new equipment may be initially cumbersome
- Alignment of billing cycles and amounts will need to be done with care so as not to adversely affect cash flow
Buy the in-use equipment.
This is essentially a situation where you lease the equipment to eventually own it.
- You know the equipment, have been maintaining it, and are comfortable with its performance record
Considerations in structuring your lease:
- You can buy the equipment at fair market value – a price agreed upon in the lease document. This can reduce your monthly payments (because the residual value will be higher), but you’ll pay more at the end of the lease for the equipment
- Percentage or cash buyout – you can structure the lease document to provide advantageous end-of-lease buyout terms (eg 10% of original equipment value, or a fixed cash amount). These will have the effect of making your monthly payments higher (because the residual amount is lower)
Return the equipment.
- If you no longer need or want the equipment, end-of-lease is a good time to simply return it.
- It’s emotionally simpler (get rid of equipment A, replace it with equipment B)
- Returned equipment will be required to be in good working order, accompanied by maintenance records
- Replacing equipment may require special accounting treatments and analyses