Equipment leasing companies work in a certain way. Here is a highlight of how they work.
Nowadays, leasing equipment has become popular among business owners. This is because of the flexibility and the low costs. To meet this demand, equipment leasing companies have come up. These offer different types of equipment depending on their client base. There are various methods through which such companies operate.
How Do Equipment Leasing Companies Work?
These companies have a simple operating model. The customer identifies what they need and checks if the company offers such leases. After confirmation, the client specifies how long they will need it. The company will then give a quote detailing the specifications of the equipment as well as the rates and payment options.
If the client decides to take the offer, the company will require them to sign a lease agreement or contract before the delivery. The contract basically states that the company buys the equipment and the client rents it for a certain fee every month. For some companies, the amount of time in between payments can be less or more than a month. For example, there are some who offer per day lease while others offer weekly or annual intervals.
Some companies may want to do a credit check first before leasing any equipment. This is simply to confirm that a customer will be able to keep up with the payments. Therefore, it might be necessary to produce a guarantee before getting any items. Other companies request for a security deposit before delivering.
It is often advisable for clients to take out insurance to protect them from liability in the event of damage or loss with regard to equipment. This specification varies from one provider to another. The insurance requirements are normally written down and included as part of the lease agreement.
Cost Financing
The lease equipment providers finance all the costs for the equipment. Such expenses include transporting, installing and servicing when necessary. This means the client only has to worry about the fixed monthly installments. This makes it easy for business owners to estimate their expenditure and plan properly.
Types Of Equipment Leases
Leasing companies have come up with different options for clients. This allows them to choose what works best for their business model. One of the innovative types include deferred payment or step-up lease where someone can get equipment for less at first and increase as time goes by. This is especially beneficial to startup enterprises since it allows the owner to get enough money before they start paying for the equipment.
There are skip leases where the client only pays during certain periods and skips others. This is offered mostly to those who have seasonal business. They are able to pay during peak seasons and skip the rest. In most cases, the company allows the client to choose the months they would like to pay within certain guidelines.
There is also a true lease which is one of the most common types. In this lease, the company remains the owner of the equipment during the lease. The customer who takes out the lease considers the payments as part of the business operating model. Many enterprises prefer this model since it is a tax friendly option. The business is entitled to tax deductions from the lease.
What Happens At The End Of A Lease?
All companies offer a specific amount of time for an equipment to be leased out as stipulated on the contract. Once this time elapses, the client has three options. The first one is to return the equipment to the company if they have no further use for it. This can also be the case when the client wants to upgrade and lease better equipment or of higher capacity.
The second option is to purchase the equipment at an amount that is agreed on. There are companies that offer capital lease on some of their items. This means the client pays for using it in installments but at the end they will own the equipment. It simply allows the client to make a purchase but pay slowly until their business is up and running.
The third option is requesting for an extension. If the client still has need for the same piece of equipment, they can ask for more time. The same contract can be extended although in some cases the terms maybe revised. It is also possible to add more equipment to the lease in the event of expansion.
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