It’s not a secret that school systems across the country have been struggling with their budgets over the last four years. Unfortunately, many schools have been forced to continue to use aging and outdated equipment for financial reasons. However, by carefully weighing the pros and cons of leasing IT equipment including desktops, tablet computers, iPads, servers, laptops, wireless networking solutions and more, many schools may find they can stretch their budgets further and get the equipment they need now by leasing.
Here are issues to consider in the lease-versus-buy analysis:
- There is an implicit cost of money component to leasing which should be factored in to the analysis. Obviously leasing isn’t free. However, today leasing certainly is cheap. With interest rates at historic lows, a school districts cost of funds is also very low, making the decision to lease often even more attractive.
- Leasing is a good way to stay current and refresh technology. With a lease with a $1 purchase option, the IT equipment tends not to be refreshed. But with a lease with a fair market value purchase option, the refresh decision has to be made.
- Consider fair market value leases (which tend to be cheaper) for equipment with a limited useful life (like notebooks), but $1 purchase option leases for IT infrastructure.
- Ideally, negotiate an end-of-lease option that allows a purchase option for some items but not others – defer the decision so you can truly evaluate the equipment throughout the lease term.
- We find that many students want to buy their notebooks at the end of the lease rather than return them, even if the notebooks are 3-4 years old. Some students don’t. Negotiate a fixed price end-of-lease option for this if you can.
- Be careful of extended warranties. Some don’t cover liquid spills, cracked screens and drops.
- In almost all cases we recommend that schools customize lease terms. Most leasing companies—including TEQlease Capital–can and will provide a leasing solution customized for what your school needs.
What questions do you have about leasing? Please contact us and we will walk you through the options.
If you are looking into increasing your capital spending and considering leasing, the first thing to understand is the three most common types of leases. Learn More >>
Over the next 12 months the percentage of U.S. small businesses that plan on increasing their capital spending is 28% according to the Wells Fargo/Gallup Small Business Index. That’s the highest rate reported in four years.
If you are looking into increasing your capital spending and considering leasing, the first thing to understand is the three most common types of leases: Fair Market Value Lease; $1 Purchase Option Lease; and 10% Purchase Option Lease.
A Fair Market Value (FMV) Lease is one of the most common leases that businesses select in part because of its flexibility. Businesses often select a Fair Market Value lease if the equipment they are acquiring, such as technology equipment, rapidly loses its value once it is placed into operation.
Fair Market Value (FMV) Lease:
- Offers the lowest monthly payments. An FMV lease is ideal for businesses that want the lowest possible payments and are unsure if they want to acquire the equipment at the end of the lease.
- Provides tax incentives. Businesses may be able to deduct the monthly lease payments as an operating expense deduction.
- Provides the greatest flexibility at lease end. At the end of a FMV lease a business can decide to return the equipment, continue to pay for and use the equipment per your agreement with the lease finance company, purchase the equipment or upgrade it with newer equipment.
A $1 Purchase Option Lease is another of the most common leases that businesses use to acquire equipment today. Each type of lease is useful, depending on the type of equipment and the type of anticipated use. A $1 Purchase Option Lease is often used by businesses or schools when they know they will still be using the equipment for an extended period after the end of the lease term.
$1 Purchase Option Lease:
- Provides businesses the ability to purchase the equipment for a $1 at the end of the lease term.
- Monthly payments are higher than a Fair Market Value lease because the lessee is now financing 100% of the equipment cost.
- Provides additional financial benefits that may include depreciation and interest expense benefits for tax purposes.
The 10% Purchase Option Lease is often selected by businesses who want to keep their options open to purchase the leased equipment at the end of the lease. This lease is most appropriate for businesses that aren’t ready to make a purchase decision at the beginning of their lease.
10% Purchase Option Lease:
1. The lessee usually may purchase the equipment at the end of the lease at a fixed price equal to 10% of the original price.
3. Provides additional financial benefits that may include depreciation and interest expense benefits for tax purposes.
Not sure which type is best for your business? Please contact us and we will walk through the options with you.
There are many reasons to use an equipment leasing solution on your next acquisition. Learn More>>
There are many reasons to use a leasing solution for your next equipment acquisition. At least one of these may be reason enough to choose to lease:
Protection from Obsolescence. Leasing allows you to match the lease term to your determination of the equipment’s useful life.
Conservation of Capital. Because of the sizable cash outlay involved in purchasing new equipment, many businesses lease to conserve capital.
Soft Costs. A customized lease allows you to “finance” soft costs, including extended warranties, maintenance, installation and freight costs.
Lease Structure. An equipment lease can be structured to address your particular concerns. End-of-term options will drive the tax and accounting benefits sought: these can include $1 purchase options; open-ended fair market value purchase options; and fair market value purchase options structured with PUTs, caps, and collars.
Alternative Financing Source. Leasing through TEQlease Capital, instead of using existing bank lines, allows you to diversify your sources of capital acquisition.
Tax Benefits. Although you should first talk with your tax department or tax advisor to determine its impact on your business, leasing is considered to be a tax advantage for most businesses.
Ability to Work within Budget Limitations. Purchasing and department managers often have the authority to acquire needed equipment,but only if it fits within operating budget guidelines. Many managers decide to acquire needed equipment by leasing to remain within operating budget requirements.