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Best Business Equipment Lease Rates and How to Qualify

Posted On: September 18, 2019 author Paul Kendall

Business equipment lease rates are not always the same.

That’s because many factors can affect the business equipment lease rates you get. These include the type of equipment being leased, the industry you’re in, and more.

The age of your business, even the age of your equipment and the health of its finances can affect business equipment lease rates. Your credit score generally has an impact on them too. 

Obviously, you want the lowest business equipment lease rates possible. Low rates can keep your monthly payments manageable.

To that end, I’ll show you how to obtain the best business equipment lease rates. In so doing, you’ll learn some of the types of equipment leases, how to qualify for good rates, and more.

Finding the Best Business Equipment Lease Rates

 

In order to find the best business equipment lease rates, you have to know what affects them. 

As I mentioned earlier, there are many things that influence these rates. They range from the type of lease you have to the leased equipment’s ability to hold its value to the industry you're in. Some of these things are controllable and some aren’t. For example, you can’t alter your credit score in a hurry but you can generally pick the type of equipment lease you’re getting.

Getting the best business equipment lease rates is thus simply a matter of doing your best with the factors you can control. 

Returning to the previous statement, for instance, you can pick the best equipment lease type for your situation to try to get the best rates. You’ll learn more about that later. For now, however, let’s run through a quick overview of equipment leasing, so we can be certain we’re on the same page.

Understanding Equipment Leasing

 

Sometimes, businesses reach a point where they need new equipment to keep operating… but they can’t afford to buy that equipment. That’s where equipment leasing comes in. Equipment leasing is a solution that allows you to use the equipment you need for a specific period without buying it outright for cash.

That means equipment leasing doesn't automatically give you ownership over the equipment. You can use it, yes, but you don’t own it.

Instead, ownership remains with the lessor unless you decide to buy the equipment at the end of the lease. This gives you the freedom to choose different equipment after your lease ends, if so desired.

In addition to that, equipment leasing also allows you to use the latest equipment. That’s because you’re not committing to a particular piece of equipment by purchasing it (unless that’s your intention, of course). 

Now, equipment leases fall under two broad categories. The type of agreement plays a part in determining the business equipment lease rates, as mentioned earlier.

If you go with a capital lease, for instance, this gives your business all the benefits and drawbacks of owning the equipment. All the assets and liabilities also fall into your business's balance sheet.

Examples of a capital lease are the $1 buyout lease and 10% option lease. Ideally, you should avail of capital leases if you plan to purchase the equipment after the lease term ends. If not, you should go with the other category of equipment leases -- the fair market value lease buy out. In this type of lease, you won't own the equipment, so it won't show in your balance sheet.

Ideally, you'd want to avail of a FMV lease if the equipment has a short shelf life or if you just don't plan to buy it after the lease ends. With a FMV lease you can also write off 100% of your payments off your taxable income because it's viewed as a rental expense. 

Some lenders can offer a large residual value on certain types of assets which can considerably lower your true cost of ownership over the course of the lease term. 

Let’s go into more detail about this, because it’s related to how you can get the best business equipment lease rates. Here are 5 types of equipment leases:

 

Best Business Equipment Lease Rates and How to Qualify - business equipment

 

$1 Buyout Lease

With a $1 buyout lease, you make monthly rental payments to use the business equipment. At the end of the lease, you can then buy the equipment for $1.

The $1 buyout lease has relatively high business equipment lease rates. Typically, a $1 buyout lease even has interest rates that range from 6-15% for great to decent credit profiles. Bad credit companies looking to get equipment financing and some start up businesses could pay rates up to 35%.

That means this type of equipment lease has higher monthly payments than most other equipment leases. That being said, it also has the lowest payout at the end.

It's best to avail this type of lease if you're going to buy the equipment when the lease ends.

Operating Leases 

One of the more traditional and older forms of off balance sheet financing is through an “operating lease,” where the company uses a contract to lease an asset from a lessor, rather than reporting that asset and liability on their balance sheet. 

One of the  benefits of operating leases is the potential tax benefits. An operating lease may allow you to deduct your payments as operating expenses during the period in which you pay them. Lowering your taxable income and net cost for the equipment. 

In order to qualify for a true operating lease, a lease contract must satisfy the following criteria. The life of the lease must be 75% or greater of the asset's useful life. The present value of lease payments is less than 90 percent of the equipment's fair market value. The lease cannot contain a bargain purchase option (i.e., purchase option for less than the fair market value). 

The rate over the course of the lease term could be negative. It's common to see around 2% rates over the course of the equipment lease term on good credit operating lease deals. 

Fair Market Value Lease

A fair market value (or FMV) lease is when you pay monthly rent in exchange for the right only to use the equipment. The business equipment lease rates for this lease type may vary. Usually, FMV lease interest rates have the highest long-term costs.

You still do have an option to acquire the equipment you’re leasing with this lease type, though. When the lease ends, you can choose to buy the equipment at its fair market value. However, its fair market value will be determined by the leasing company. Generally, the cost of the equipment will be calculated based on its value in the market.

If you don't want to buy the equipment, you can choose to renew the lease or return the equipment altogether. As such, you should choose an FMV lease if the equipment can quickly become obsolete, like computers.

Some lessors will cap your FMV buyout possibly not to exceed 20% or less and some will keep it wide open for negotiation in the end or return the equipment. Some lessors want the equipment back but most aren't in the business for picking up and reselling the equipment.

10% PUT Lease

 

A 10% PUT Lease operates just like the 10% option lease, with the addition of a clause for PUT. PUT" stands for "purchase upon termination".

This lease has average business equipment lease rates. It also typically has interest rates that range from 7-16%. Because of the terms of this lease, you need to buy the equipment after the lease is up. I suggest to avail of this lease only if you're sure that you want to buy the equipment at the end of the lease term.

In addition to that, you should also be sure that you'll have the amount (10% of cost) to buy it.

Note that this lease can provide lower monthly payments than some other lease types. That is because the lender knows that you'll be purchasing the equipment at the end of the term.

 

Best Business Equipment Lease Rates and How to Qualify - office equipment

 

Qualifying for the Best Business Equipment Lease Rates

 

Now you know some of the most popular types of business equipment leases. Let’s move on to the factors that you need to keep in mind when applying for an equipment lease.

One of them is the equipment leasing company itself, of course, as well as its policies. Beside that, here are the other factors that affect business equipment lease rates:

  • Personal credit scores,
  • Business loan payment history,
  • Type of lease and size of the lease,
  • Length of the lease, and
  • How well the equipment holds value.

 

Most equipment lenders will give approvals with just a simple one page application and have application only limits from $25,000 up to $500,000. $150,000 is a common application only limit for many equipment lenders.  For application only approvals, credit scores are usually where business owners worry.

Ideally, your credit score should be 680+ to ensure smooth sailing. That's because a low credit score will mean higher interest rates. Equipment lenders look at your comparable debt balance history. They'd like your comparable debt to be seasoned two years or more and be close to the loan amount you're looking to borrow for your business. 

Leasing companies charge higher lease rates to businesses with poor personal credit. That’s because they want to cover the risk of the business failing to meet its payments, after all.

But even if you have a low credit score, there's still a chance that you'll get reasonable business equipment lease rates. You just need to find more flexible equipment leasing companies.

Your years in business can even get you better rates with equipment leasing companies like Trust Capital. For example, businesses with over 2 years in business can get great rates there with a FICO score of 700+. Trust Capital does offer the lowest rates to start up businesses as well. 

For the lowest rates available, though, you'd need to be a company with over 3 years in business providing a full financial package.  Then lenders are going to look at your net operating cash flow history and how it's trending and your debt service coverage ratio to see if you qualify for lower equipment lease rates.  

If you have a startup company, you have a slim chance of getting reasonable business equipment lease rates. That's because your business equipment lease rates will mostly depend on your business’s credit score, which isn’t likely to be stellar if you’re a startup.

Finding the Right Equipment Financing Company

 

It's best to be picky in choosing an equipment leasing company. The future of your business might depend on your partnership with them. With that said, it's best to make a partnership with companies like Trust Capital. They are one of the most reliable equipment leasing companies in the USA.

Companies like Trust Capital can easily help you acquire the equipment and technology that your business needs in order to grow.

You simply need the following if you want to partner up with Trust Capital:

  • Business license or active business entity with the secretary of state,
  • Personal guarantees required from all owners, (unless over 5 years in business with strong financials)
  • Minimum 625 credit score,
  • No bankruptcies in the last 7 years, and
  • No unresolved tax liens.

 

Meeting their requirements gives you a chance of getting the best business equipment lease rates possible. 

Final Thoughts on Business Equipment Lease Rates 

 

In this blog post, we talked about the best business equipment lease rates.

Equipment leasing can help your business in a lot of ways. It can improve your production, quality of products, and sales by giving you access to equipment you require. 

That is because equipment leasing allows you to use that necessary equipment without destabilizing your capital. You get to use the equipment you need without paying for the full cost of its acquisition outright. Depending on the equipment lease you get, you may not even have to buy the equipment at the end of the lease! Instead, you may choose to renew the lease or switch to newer, possibly better equipment.

With equipment leasing, you'll usually pay for the use of the equipment on a monthly, quarterly, seasonal or semi annual basis. It's wisest to do a Step Down Lease because it will lower the overall cost of your equipment lease. Make your monthly payments larger the first year then make your payments decline year after year until the lease term is over. You will cut your overall cost for your equipment lease rates quite considerably.  

In turn, your business equipment lease rates will depend on factors like your personal credit score and years in business for application only approvals. They can also be affected by the type of lease you get to the type of equipment you're financing. To get the lowest rates provide a full financial package showing your business can fully support the new debt. Furthermore, your business equipment lease rates depend on the equipment leasing company. Some equipment financing companies impose more reasonable rates than others, depending on your circumstances.

If you want to get the best business equipment lease rates, call Trust Capital at (866)458-4777.  

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