To Buy or to Lease? – Getting Equipment for a New Business

There are different types of payment options available for business owners who consider equipment leasing as a way to obtain the equipment they need to start or expand their businesses. One of the most common types of equipment leasing options is known as a “True Lease Payment” or sometimes as a “Tax Lease.”

A true lease payment plan allows the business owner to pay toward the lease throughout the term of the equipment leasing agreement. At the end of the equipment leasing agreement, the business owner may choose to purchase the equipment at fair market value or walk away from the lease with no further money owed.

True Equipment leasing options provide two important advantages to business owners. First, a business owner may be able to claim the lease payments from this type of equipment leasing agreement for the purposes of taxes.

By comparison, other options such as finance equipment leasing agreements are often considered by the government to be installment plan purchases. Consequently, finance equipment leasing agreements do not typically provide the same tax benefits. Of course, before you sign any equipment leasing contract it is always important to discuss possible tax implications with your tax professional. True equipment leasing options also commonly allow for lower payments than other options such as finance leases. This is because the equipment can be resold after the lease agreement expires in the event the business owner elects not to purchase the equipment. In terms of upfront costs, a business owner should expect to put down a first and last month payment when making an equipment leasing agreement. These payments are commonly due at the time of signing. In some cases, a business may need to put up a down payment or additional collateral if they are considered to be a high-risk or if they are just starting their business and cannot provide past financials.