Most businesses in the United States lease equipment at some point. Many of these companies use leasing to finance the eventual purchase of the equipment. This chapter discusses the various types of leases, the advantages and disadvantages of leasing over purchasing, the lease process, the effective costs of leasing, and negotiating points.
An equipment lease is a legally binding and generally noncancellable document that details an agreement between two parties: The lessor is the party that owns the asset, and the lessee is the party that uses the asset. Lessees choose the asset they wish to use and the vendor(s) they want to supply it. They also negotiate the purchase price and performance requirements directly with the vendor of their choice. The lessor, on behalf of the lessee and at the lessee's instruction, purchases the specific asset from the specified vendor.
The lessee agrees to keep and use the asset for a specific time period defined as the lease term. During this period, the lessee must pay a predetermined periodic rental, usually monthly; pay any and all taxes or other equipment assessments; maintain the required insurance; and keep the asset in good working condition.
|Capital Access Point||Bank||Captive/Vendor|
|Definition||Banks are a major source of equipment leases. Because of the bank's cheap source of funds, they may offer the least expensive lease terms. ...|