From choosing a seasonal payment option to exploring the benefits of a sales-leaseback, here are seven answers to the question, “What are the best examples of lease structure options for business equipment leasing?”
- Seasonal Payment
- Terminal Rental Adjustment Clause (TRAC) Lease
- Operating Lease
- Fair Market Value (FMV) Lease
- Hybrid Lease
- Capital Lease
- Sale-leaseback
Seasonal Payment
One creative lease structure option for business equipment leasing is the “skip payment” or “seasonal payment” option. This option allows businesses to make higher payments during the months when their cash flow is stronger, and skip payments during the slower months.
This structure can be particularly helpful for businesses with seasonal fluctuations in revenue, as it allows them to adjust their lease payments accordingly. By utilizing this option, businesses can better manage their cash flow and avoid financial strain during their slower periods.
Luciano Colos, Founder and CEO, PitchGrade
Terminal Rental Adjustment Clause (TRAC) Lease
A TRAC (Terminal Rental Adjustment Clause) lease is a type of lease agreement that is typically used for commercial vehicles. The lessee pays a set monthly payment, and at the end of the lease term, the vehicle is sold and any proceeds above the predetermined residual value are returned to the lessee. This can be beneficial for businesses that want to use commercial vehicles but don’t want to take on the full cost of ownership.
Nick Edwards, Managing Director, Snowfinders
Operating Lease
For business equipment leasing, there are various lease structure options available. One such option is an operating lease, which is a lease agreement where the business leases the equipment for a set period of time and then returns it to the lessor at the end of the lease term. This type of lease structure offers several benefits, including lower monthly payments and the ability to upgrade equipment more frequently.
According to a report by Grand View Research, the global equipment leasing market size was valued at USD 864.37 billion in 2020 and is expected to grow at a compound annual growth rate (CAGR) of 9.8% from 2021 to 2028. This shows that more and more businesses are turning to equipment leasing as a cost-effective solution.
Himanshu Sharma, CEO and Founder, Academy of Digital Marketing
Fair Market Value (FMV) Lease
Fair Market Value Lease, also known as FMV Lease, is a popular lease structure option for business equipment leasing. It allows businesses to lease equipment for a fixed term and, at the end of the lease term, they have the option to purchase the equipment for its fair market value, extend the lease, or return the equipment.
FMV Lease allows businesses to spread out the equipment’s cost over its useful life, conserving cash flow and freeing up working capital for other business expenses. Moreover, FMV Lease typically provides lower monthly payments than other lease structures.
Jefferson McCall, Co-founder and HR Head, TechBullish
Hybrid Lease
A hybrid lease is a type of lease agreement that combines features of both operating and capital leases. We can customize this type of lease to meet the specific needs of the business and can be beneficial for businesses that want a more flexible lease structure.
The lease terms can include options for the lessee to buy the equipment at a predetermined price or return it at the end of the lease term.
Ahad Ali, CPA, Ahad&Co
Capital Lease
I can vouch for the advantages of capital leases because I have firsthand experience with them. Because they give the option to buy the equipment at the end of the lease period, capital leases are the best choice for firms that need equipment for the long term. Capital leases, as opposed to operational leases, permit ownership of the equipment and frequently have cheaper total costs.
Percy Grunwald, Co-founder, Compare Banks
Sale-leaseback
A sale-leaseback is a type of lease structure where the lessee sells the equipment to the lessor and then leases it back for a set period of time. We often use this type of lease structure when a company needs to raise capital quickly but still needs access to the equipment.
At the end of the lease term, the lessee can either renew the lease or purchase the equipment back from the lessor.
David Bui, Director and Automotive Lead Specialist, Schmicko