To Lease Or Not To Lease?

How It Works

Leasing offers 100 percent financing for equipment, furniture and other items you may need to run your business. When you lease equipment, a company, such as the manufacturer, dealer, broker or financial institution, either buys or already owns the equipment you order from them. In exchange, you make monthly payments to the leasing company. At the end of the lease, you typically have the choice of buying the equipment, returning it or extending the terms of the lease.

First and last payments are often required upon signing a lease. Generally, there are three ways to lease equipment:

1. You select and order it, then seek financing through a lessor.

2. You lease through dealers and vendors who have their own subsidiary leasing companies.

3. You acquire the equipment from a lessor, which buys the equipment from the manufacturer, then leases it directly to you.

Leasing companies charge customers a monthly rate, much like interest payments on a loan, but the rates are usually low and depend on the length of the lease, cost of the equipment and the type of lease you choose. The Lease Rate Factor determines your monthly payments and shows up on your bill as a percentage, fraction or decimal equivalent of the cost of the equipment. For example, a factor of 0.0360 on $5,000 worth of equipment requires a monthly payment of $180 (.0360 x $5,000 = $180). Leasing companies, such as Lease Consultants, have rate charts that state their terms and can schedule payments to be paid on the 1st, 10th or 21st of each month.

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This article was originally published in the February 1998 print edition of Entrepreneur with the headline: To Lease Or Not To Lease?.

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