Leasing new or used equipment for up to $75,000 usually involves completing a one-page application. In most cases, a decision on the lease is made within 24 hours, but some decisions are made in as little as eight hours. Documents are sent to the buyer (lessee), signed, and then returned to the funding source (lessor). The equipment is received and the lease payments start.

A standard equipment lease term is usually 60 months. Some leases, however, are for as short as 12-months, while 72- to 84-month leases are sometimes available to a credit-worthy lessee. Some typical lease program terms include the following:

Standard fixed monthly payment—Zero payments for 90 days, seasonal; followed by a step-up rate (low at first, then increasing).
6x$99 program—Six payments of $99, then a set payment, and others upon request.
Pre-funding—A vendor can be given up to 50 percent of the price of the equipment before it is built, while the lessee only puts up the deposit payments required to start the lease. When the equipment is delivered, the vendor gets paid the balance due.

This program satisfies all the parties involved, but the lessee gets the greatest benefit as a result of getting the equipment it wanted without having to pay a large deposit up front. Should the lessee wish to upgrade equipment, this program also works well. New, state-of-the-art equipment can replace an older piece in the plant very easily. Upon approval, the funding source pays off the remaining balance of the older piece, and applies that balance to the cost of the new equipment. The shop now has new, modern equipment, without having to be concerned about selling the older piece.

Sale/leaseback—This program is for lessee-owned equipment. The funding source buys the equipment from the lessee and leases it back. This program is normally a 36-month lease with a $1 buy-out option, which transfers the ownership of the equipment to the lessee at the end of the lease term. A sale/leaseback can help raise cash without affecting a line of credit with a bank.

Leasing terms are most often 12, 24, 36, 48 or 60 months, while end-of-lease payment options are usually either $1, 10 percent of the original lease amount, or fair market value (FMV). FMV option is based on the value of the equipment at the end of lease term.

If equipment has a high value, the buy-out would be commensurately high (possibly more than 10 percent). The end-of-lease payment helps determine the monthly lease payments, with the highest lease payments being tied to the $1 option, and the lowest monthly payments coming with FMV option. Leases can be structured so that all payments are 100 percent tax deductible. An accountant can help determine the best structure for your business.