When it comes to financing lift trucks, you have two options to choose from. Which one is best for your business? Read on to learn more.
1. Operating Lease
An operating lease is known as a “non-ownership” lease or “off-balance sheet” financing. This type of lease is structured to allow you to maximize utilization and productivity while avoiding costs associated with the truck becoming obsolete. This type of lease contract allows the use of an asset (such as forklifts in this case), but does not shift ownership to the lessee.
A Fair Market Value Lease (FMV) is the most popular type of operating lease. With this, you pay for the use of the forklifts or equipment. The benefits:
- Monthly payments are generally lower than other kinds of leases because the residual value is used in calculating the payments required to finance the forklifts.
- Tax Benefits – The lessee is not the owner of the asset and can therefore expense monthly lease payments as an operating expense. In many cases, the entire lease payment can be fully tax deductible.
- There are a number of options for the lessee at the end of the lease term, including purchasing the equipment for its fair market value, returning the equipment to the lessor, or extending the term of the existing lease.
- There is little up front expense for FMV leases in most cases, which means that the lessee will essentially start making monthly payments for the use of the lift truck equipment.
2. Capital Lease.
A capital lease is typically treated the same as a loan since the asset, such as the forklift, is considered owned by the lessee. Capital leases are utilized for more long-term leases, which means that they are usually considered for products that have a long, useful life with low risk of obsolescence. Because ownership is shifted to the lessee, the lessee inherits the benefits and drawbacks of ownership. The asset is considered a debt of the lessee and may be depreciated over time.
With the Dollar Option Lease, the most popular type of operating lease, a $1 payment at the end of the term of the lease is considered the final payment. This means the lessee has completed all obligations of the lease and officially owns the asset outright.
Which Forklift Lease Option Is Best For Your Company?
Forklift leases can be uniquely structured based on the needs of your business. Your MCFA lift truck dealer can help guide you through the process, but here are a few options to consider:
- 90-Day Delayed Payment Program - Provides you with 90 days of lift truck equipment utilization free of charge before monthly payments begin. This product is ideal for budget constraints or if your business has a slow time of the year.
- Early Termination Option - Designed if you’re operating on a “renewable contract” basis or if you’re anticipating application changes that may affect asset specifications. This option will allow you the flexibility to structure the lease at various terms (i.e., 3 years followed by 2 years) giving you the option to either return the equipment after 3 years, or continue leasing the equipment for the additional 2 years at a significantly reduced monthly payment.
- Fixed Purchase Option - Fixed purchase options are typically used if you are seeking an OPTION to purchase equipment at the expiration of the lease term at a predetermined purchase price. This program may qualify as an operating or capital lease.
- Accelerated Payment Leases - Monthly payments are higher in the first year and decrease annually over the life of the contract to better align payments to maintenance costs. If you perform your own maintenance, this is the option for you. This can be used for both operating and capital leases.
- Skip Payments - If your business is cyclical or seasonal, this option allows you to synchronize your payments with your cash flow. A skip program is typically limited to 3 skip payments a year. This can be used for both operating and capital leases.
For more information on how leasing can be structured to fit your specific needs, please contact your local MCFA lift truck dealer.