What exactly is equipment leasing?
An equipment lease is a contract for the use of a specific piece (or multiple pieces) of equipment for a specific period of time (generally 24 – 60 months), at a fixed monthly payment amount, which is agreed upon in advance.
Why should I lease equipment rather than purchase it outright?
You don’t pay your employees a year’s salary in advance; rather you pay them as they contribute. It should be no different with a contributing asset like business equipment. Leasing allows you to pay as you use the equipment, not before. This way, you can start generating income from the use of equipment, before making your first payment.
Does equipment leasing provide tax benefits to my business?
Leasing is generally advantageous to most businesses in that monthly lease payments can oftentimes be deducted as an operating expense, reducing your taxable income.*
What type of equipment can be leased?
The most common equipment types available under our leasing program include, but are not limited to, computer equipment and software; medical equipment; office equipment and furniture; manufacturing and industrial equipment; materials handling and construction. Ask your Financial Advisor if you have a specific equipment need.
How will I know if I qualify for a lease?
We like to look at established businesses with a good credit record that have been in existence for a minimum of two years.
What are the different types of leases available?
There are many lease types, with varying payment structures. We have highlighted the three most common types, with the Fair Market Value Lease option being the most popular among today’s businesses. We also offer special lease options for commercial vehicles.
Fair Market Value Lease (FMV)
Also known as a “true lease,” this option is the most popular lease plan. It offers low monthly payments, and when the lease ends, you may choose from numerous end-of-lease options including:
Purchase the equipment at the then determined fair market value
Re-lease the equipment at a fair rental value
Continue to lease on a month-to-month basis
Return the equipment
10% Fixed Price Purchase Option Lease
This plan guarantees the end-of-lease purchase price. Of course, you may choose to return the equipment. The 10% purchase option plan offers end-of-lease flexibility while it pre-determines the residual value of the equipment.
$1 Out Purchase Option Lease
At the end of the lease term, ownership of the equipment is transferred to you for only $1.
What happens at the end of the lease?
What happens at the end of a lease is up to you and the lease type selected. Please refer to the lease types above for possible end-of-lease options.
How will I know if my business will benefit from a lease?
Simply ask yourself the following questions. If your answer is “Yes” to any of them, your business may benefit from an equipment lease.
q: Am I planning to update my equipment or expand my office or production facility?
q: Would consolidating all of my equipment purchases on one invoice be helpful to my business?
q: Would protection against equipment breakdown or obsolescence be of interest to me?
How will I know if a lease is the right choice for my business?
If any or all of the following are pertinent to your situation, you should talk to your Financial Advisor about a lease option that fits your business’ budgetary requirements:
The needed equipment will become obsolete in a few years
You are looking for a more efficient way to manage cash flow
Your company is looking for off balance sheet financing and tax advantages
You are looking for 100% cost coverage (“soft” costs)
* Merrill Lynch does not provide tax or legal advice. Consult with your tax and legal advisors about the potential tax benefits of leasing and other types of financing.