Heavy equipment is huge investment for your business – skid steer loaders, forklifts, excavators, and the like can cost tens of thousands of dollars each. Financing heavy equipment is the best way to get the equipment you need without breaking the bank, and heavy equipment leasing is the most popular source of financing.
Although lessors may have different names for them, you'll find that there are basically two types of heavy equipment leasing: finance and true.
Some Finance companies do things called capital leases, conditional sales, or dollar buy out leases. Finance leases are best if you intend to keep the equipment at the end of the lease because they include the option to purchase the equipment for a nominal fee. Payment terms for heavy equipment leases tend to be around the expected useful life of the equipment.
True leases, also called tax leases, operating leases, or FMV (fair market value) leases, do not usually span the full expected life of the equipment. At the end of the lease, you can choose to walk away from the equipment or purchase it at fair market value. Payments on true leases generally tend to be lower than those on finance leases. This is because lessors have the opportunity to resell the heavy equipment when the lease ends.
Tax implications of heavy equipment financing:
One of the main benefits of financing equipment using true leases is that you may be able to fully claim lease payments for tax purposes. In contrast, the IRS considers finance leases little more than installment purchase plans. Make sure you discuss the tax implications of your financing plans with an accountant before signing any contract.