Do you know the difference between a Capital Lease and an Operating Lease? By understanding each of these financing products, you can decide which one best fits your equipment and your customers’ use. Americorp Financial explains these leasing programs in more detail below.
A capital lease, typically known as a $1 Buyout or 10% Purchase Option, acts more like a loan where the asset stays on the customer’s balance sheet, which allows your customer to claim tax benefits. Payments are higher than an operating lease since the customer is paying more toward the balance in an effort to own the equipment at the end of the selected lease term. A capital lease is long-term financing and perfect for equipment with a longer lifecycle of 10+ years (material handling, cleaning equipment, pressure washers, machine tools).
An operating lease, typically known as a Fair Market Value (FMV) Purchase Option, acts more like an equipment rental where the equipment payments are considered as operating expenses and not tax deductions. Payments are less than a capital lease since the customer has the option to return the equipment at the end of the lease term. The customer can purchase the equipment at the end of the term at the then FMV price. An operating lease is short-term financing and perfect for technology-based equipment with a lower lifecycle of under five years (healthcare equipment, rehabilitation equipment, pharmacy automation, PCs/tablets, robotics/automation, supply chain).
Americorp can design a rate calculator as a starting point for your financing program using the capital lease and operating lease buyout options as a standardized program. These products tend to work well for large distributors who come across financing on a daily basis where the customer does not have specialized needs for equipment and services. These products provide a starting point for your customer for a monthly payment over a specific lease term (24 to 72 months).