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Exploring leasing options

by | Aug 23, 2016 | Learning Center

Traditional financing options such as buying and renting aren’t always the best financing options for your aerial work platform or cranes. In some circumstances, it makes sense to make use of alternative financing options in order to spread out the cost of a vehicle over the lifetime of the equipment, with agreements specific to your needs. Below, we discuss several alternative financing options to consider.

Why it might be necessary to look at alternative financing options

It’s fairly unlikely for owners to pay cash upfront for a business investment as significant as an aerial work platform or crane. Instead, various financing options are available to allow businesses to conserve capital while investing in the growth of their business. Since well-built service trucks tend to have very long service lives, financing allows for the cost of the equipment to be spread out over a long period of time. Some of these alternative payment options can be powerful incentives for purchasing equipment in their own right. Section 179 of the IRS tax code, for instance, covers tax deductions for machinery and equipment acquired for business use and also covers lease agreements.

Other alternative financing options include:

  • Rental-purchase option agreements (RPO)- These agreements, typically signed at the moment of the original equipment rental, give the renter the option to purchase the equipment at any time during the rental with some portion of the rental fees credited to the price of the equipment. This can act as a hedge for the type of renter mentioned above, who may be unsure of how often the type of work necessitating a particular type of machinery will surface.
  • A fair market value lease (FMV) - FMV leases offer lower monthly payments than traditional financing and typically include a provision that allows the lessee to purchase the equipment from the lessor at the end of the lease agreement for what is determined to be “fair market value,” hence the name. These agreements can free up capital for other business endeavors and carry with them some definite tax benefits.
  • A terminal rental agreement clause lease (TRAC) - TRAC leases are similar to FMV leases in that they are typically accompanied by lower monthly payments and include a provision for the lessee to purchase the equipment once the lease reaches maturity. These leases differ in the sense that they allow for the lessor to opt for higher payment installments in order to secure a lower purchase price after the lease has ended.

These and other options are available beyond traditional financing to help businesses invest in their equipment. It’s always worth talking over options for purchasing equipment with a financial advisor to find out what other incentives may be available.

What matters most which financing path to take is a strong understanding of your circumstances, a firm grasp of what your equipment will be used for, and a perspective that takes into account the entire lifecycle of the machinery you’re considering.

Interested in talking to someone about which financing option might be best for your organization? Get in touch with us today.

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