A Flexible Lease: What your best options are for heavy machinery
Flexible leasing with heavy machinery is disregarded because only some understand how it works.
Equipment and machinery are outright expensive. As a business owner or operator, you know that a single mistake can cost hundreds if not thousands.
That’s why we’ve prepared a quick list of leasing options depending on your company’s needs.
What is a Flexible Lease?
Flexible leases are usually mentioned in real estate. In regards to heavy machinery, flexible lease options are agreements in which you finance a piece of heavy machinery over a period of time. This can be as short as 12 months or as long as 72 months (or longer).
There are some options in which you own the piece of equipment afterward, such as a Capital Lease or a Sale-Leaseback or options for temporary use of equipment like an Operating Lease. This really depends on what your business needs are, your capital, what your budget is, and what you’re looking for after the lease term has ended.
Examples of Flexible Leases
Similar to how a rental agreement works, the equipment vendor signs a lease with you. This is drafted in a lease agreement, telling you exactly how much it’ll cost each month, what’s covered in the lease, and any buying terms after the lease is over and you want the piece of equipment.
There are some instances where you have the ability to terminate the lease and they will be specified in the contract. A professional equipment leasing company will go over the agreement in-depth with you.
Some flexible lease options include the following:
- Capital Lease: Also known as a “$1 Buyout Lease”, Capital Leases guarantee fixed monthly costs in addition to a low purchase price of the asset once the agreement comes to term. This is great if your goal is to purchase the equipment spelled out in the buyout terms and own it long-term for your company.
- Sale/Leaseback: This is a unique financing technique if you own an asset. Instead of waiting and getting approved for a loan, you can utilize your own piece of heavy equipment for capital. With a sale leaseback, you essentially are leasing a piece of equipment you previously owned. You can continue to use your piece of equipment, but have some more cash on hand for other business expenses or upgrades.
- Operating Equipment Lease: This flexible lease option is commonly called a “fair market lease”. This is usually the less expensive option, as the lessee returns the equipment at the end of the lease or they may buy it at market value. The lease payments are tax-deductible as they are part of operating expenses. The intention of an operating lease is typically for short-term business goals and to secure a piece of equipment for a better price than renting.
- Purchase Upon Termination (PUT) Lease: Similar to a Capital Lease, this type of lease establishes a price on machinery when the lease is done. A mandatory purchase price could be 15%. The intention of this is to lower the lease payments, making it less expensive monthly than a Capital Lease while mitigating risk at the end of the term with an agreement to buy the asset.
Advantages of Flexible Leases with Heavy Machinery
- Predictable Budgeting & Healthier Cash Flow
- Able to upgrade/update your heavy equipment easily
- Offers you immediate taxable benefits
There are even more reasons why flexible leases can be beneficial for your company. Why not discuss your leasing options with our consultants today?