“Seventy-two percent of U.S. companies use some form of financing when acquiring equipment, including loans, leases, and lines of credit,” according to ELFA Online.
Equipment financing is one of the smartest ways to obtain new equipment for your business. It saves you money by splitting up the cost into affordable monthly payments rather than one upfront payment. Plus, it provides tax benefits that are only available through leasing. Once you’ve decided to finance your equipment, you’ll want to look at which end of lease purchase option makes the most sense. Here are the most popular options for financing:
$1/$101 Buyout – Also known as a Conditional Sale. This option is particularly appealing because of its low-cost residual. The amount you owe at the end is already determined so you know exactly what to expect. This is a great option if you plan to keep the equipment at the end of the lease. Keep in mind that the monthly payments are normally larger than Fair Market Value leases.
Equipment Financing Agreement (EFA) – An EFA is essentially a loan that you make monthly payments on for a pre-determined period of time. At the end of the terms, you own the equipment. A portion of the payments can be written off on your taxes as well. This is a great option if you are certain you’d like to keep the equipment, especially since there is no residual due at the end of the agreement.
Fair Market Value (FMV) – Also known as a True Lease. An FMV agreement provides you with the lowest lease payment option. In addition, you can write off the payments as operating expenses. At the end of the term, you have the option of upgrading your equipment, renewing the terms, or purchasing the equipment for fair market value. This is a great option if your equipment will be obsolete in a few years and you’d like to upgrade.
10% Purchase Option– This option enables you to buy the equipment at the end of the lease for 10% of its original cost. This is a great middle ground between the $101 buyout and FMV. The lease payments are lower than the Conditional Sale option and you know how much you’ll be paying to purchase the equipment at the end of the lease.
American Capital Group specializes in small business equipment financing. Call one of our representatives today and find out which purchase option is best for you. Call (877) 814-6871 or click HERE to apply online today!