Leasing lets a business put equipment to work while the leasing company retains ownership. Instead of financing the purchase price, the business pays for use over the lease term.
Leasing suits equipment that becomes outdated quickly, businesses that prefer predictable operating costs, and companies that want to preserve other credit capacity.
How it generally works
The leasing company purchases the equipment from the vendor and leases it to your business for a set term. Payments are typically fixed and periodic.
At the end of the term, options depend on the lease type: return the equipment, renew the lease, or purchase it at a defined residual value.
Common lease types
- Fair market value (FMV) leases : lower periodic payments, with a choice to buy at market value at term end
- $1 buyout leases : higher payments, with ownership transferring for a nominal amount at term end
- Operating leases : treated as usage arrangements, often for rapidly depreciating technology
Qualification factors providers commonly review
- Time in business and revenue stability
- Business credit profile
- Equipment type, vendor, and lease term
- Business bank account health
Potential advantages and trade-offs
Advantages: lower upfront cost than purchasing, easier upgrades to newer equipment, predictable payments, and preservation of other credit lines.
Trade-offs: the business does not build ownership equity unless a buyout option is exercised, and total lease payments over time can exceed the purchase price for long-lived equipment.
How repayment is typically structured
Fixed periodic payments over the lease term. End-of-term treatment : return, renew, or buy : is defined in the lease agreement and should be reviewed before signing, including any end-of-term notice requirements.