Guide to Lease Financing for Small Business

Choosing the right business equipment financing company

Look for a small business equipment financing company that specializes in your industry, one that understands its needs and cycles and offers financing for its specialized equipment. While leasing general office machines and furniture is best done locally, the more specialized the equipment, the more expertise you need in a lease financing company.

I recommend: Leasing computers and IT equipment allows you to stay abreast of current technology. Dell’s Quick Lease program offers flexible payments and technology rotation for computers and related equipment to help small businesses stay abreast of technology. HP Financial Services offers a complete line of leasing and financial lifecycle management services. All Options Equipment Leasing offers comparative quotes from multiple lease financing companies for computer equipment. While Keystone Leasing prefers to deal with businesses that are at least two years old, they encourage start-up medical practices to apply. The National Association of Doctors has an equipment leasing program that specializes in medical equipment. Restaurant equipment is commonly leased and many finance companies serve this market. LeaseSource offers leases on food service equipment. Bizoodle matches up small business owners with equipment lease financing resources.

Use TRAC leasing for equipment financing for business vehicles

When leasing business trucks and trailers ask about a TRAC (terminal rent adjustment clause) lease, in which you hold title while the small business equipment financing company holds a lien. TRACs, which apply to over-the-road business vehicles, such as trucks and trailers, afford you the option of buying the vehicle at a predetermined price at the end of the lease.

I recommend: Biz Quoter offers comparative quotes from multiple leasing companies. First Capital Equipment Leasing Corp. offers lease financing on commercial vehicles with TRAC options.

Operating leases versus capital leases for small business equipment financing

Business equipment financing leases are either operating leases or capital leases. Operating leases allow you to use the equipment risk free and return it at the end of the lease term with no option to buy. Capital leases allow you to claim depreciation on the equipment while deducting the interest on the lease and allow you to buy the equipment at the end of the lease.

I recommend: Nationwide Funding offers operating and capital lease financing solutions.

Fair market value versus dollar out in business equipment leasing

If your intent in lease financing is to eventually own the leased equipment, you will have a capital lease, which is financed as dollar out, meaning that at the end of the lease you can either return the equipment or purchase it for a nominal amount. If you have an operating lease you will use fair market value financing, which offers a lower monthly payment than dollar out. At the end of the lease period you can either purchase the asset at current fair market value, extend the lease on a month-to-month basis, return the equipment or renew the lease for a fixed period.

I recommend: LeaseSource offers both fair market value and dollar out leases for business equipment.

Look for equipment financing lease payment options that support your business cycle

While monthly payments are the norm, many small business equipment financing companies offer alternative payment schemes that accommodate new or seasonally driven businesses. A skip lease allows seasonal businesses to skip payments in the off-season without penalty. A step-up lease is structured to have low payments in the beginning, rising as the business grows. The 60-to-90 day deferred lease allows the lessee to skip payments for the first two to three month to build capital and then begin regular monthly payments.

I recommend: Equipment Leasing Depot represents companies that offer flexible lease payment plans for businesses in seasonal industries such as agriculture, amusement and construction as well as industrial, manufacturing, medical and transportation.