True Lease or Operation Lease

Another type of equipment leasing product where the company/lessee is not 100% sure if they want the equipment is called a True Lease or Operating Lease. They lease it for a certain period of time, and at the end of the lease, they can either 1) Buy the equipment at fair market value; 2) Give the equipment back; or 3) re-lease the equipment.

This is a lease where the company is shielded from the drawbacks (and benefits) of ownership. These type of equipment leasing products are better for equipment such as technology, which may have a short shelf life, or equipment the company doesn’t want to retain past the term of the lease, etc.

A significant benefit is that the monthly payments are also less than on a finance type lease or even a bank loan.

The most notable feature with these types of equipment loans are that their structure does not contemplate a full payout of the cost of the equipment as is the case in a “Finance” type lease.

Monthly rental payments can be deducted as an operating expense.