Lease Options: Operating and Finance Lease

Not all companies have the funds to purchase and maintain the vehicles and/or equipment they need for a long period of time. This is the biggest reason why many businesses work with reputable finance agencies and lease these assets rather than buy them directly. There are two main lease options that companies can choose from, either of which can serve them well, depending on their operations.

An operating lease is essentially an agreement between the lessee and the lessor, wherein the former is allowed to use a vehicle or piece of equipment for a specific period of time before returning it to the latter. This type of lease is usually more convenient for the lessee since they can transfer the risk(s) of ownership to the finance company. In addition, all operating expenses are accounted for in an operating lease, and the lessee won’t have to worry about hidden costs.

A finance lease, meanwhile, basically lets the lessee use a vehicle or piece of equipment for business purposes, with the express purpose of purchasing it in full once the lease term has expired. The good thing about this arrangement is it doesn’t require any capital overlay, which means that most (if not all) of the funds are provided to the lessee by the finance company. There’s also the fact that the lease payments are generally tax deductible.

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