Equipment Lease Agreement Forms

Lease of equipment is seen in a multitude of commercial equipment lease situations, from a copier machine in a small corner store to a large industrial equipment leasing. Some types of equipment commonly subject to an equipment rental contract include:

• IT equipment
• Office equipment
• Restaurant equipment
• Computer equipment
• Medical equipment
• Fitness equipment
• Exercise equipment
• Commercial equipment

Equipment Leasing Benefits:

• Free Up Cash Flow-Rather than paying full retail price up front, payments are spread over time, freeing up cash flow.
• No Down Payment
• Preserve Credit Lines for Emergency Needs
• Tax Advantages -Section 179 of the US Tax Code creates a business deduction for small and medium sized businesses, allowing the full retail purchase price of equipment to be deducted in the tax year the equipment was purchased and put into use.
• Flexibility in Payments
• Avoid Technology Obsolescence-A business equipment lease, such as an IT equipment lease to lease computer equipment can include takeout, rollover, and upgrade provisions, which allow outdated equipment to be replaced, upgraded, etc. as provided in the terms of the equipment lease agreement. A takeout or upgrade clause is used so that outdated equipment can be upgraded or replaced under the lease agreement. This may trigger termination or other fees in some cases. In those cases, a rollover provision can be included to allow any fees to be "rolled over" into a new equipment lease.
• Equipment Lease Financing is Available

Basic Structures include:

An Equipment Finance Agreement - similar to a loan offering a fixed monthly payment that does not fluctuate. The lessee owns the equipment and the lessor releases their security interest when the financing agreement ends.

Lease Purchase Option - offers a fixed monthly payment and you own the equipment at the end of the lease term for a specified amount.

Percentage Purchase Option - offers a fixed monthly payment as well as a fixed purchase option. When the lease expires, you can purchase the equipment at a percentage of its original cost, renew, or terminate the lease and return the equipment to the lessor. You may also apply to upgrade to new equipment.

FMW Based Purchase Option - offers the lowest fixed monthly payment, and payments are typically fully tax deductible. The lessee?s options at the lease end are to buy the equipment at fair market value, renew the equipment lease, or return the equipment to the lessor. An upgrade to newer equipment may also be possible.

Fixed Purchase Price Agreement -this agreement has the lessee pay a fixed price at the end of the lease, which may be a certain dollar amount or range between a minimum or maximum amount. The larger the Balloon payment, the lower the monthly payment.

Terminal Rental Adjustment Clause (TRAC) Lease - provides a certain purchase price at the end of the lease term and falls under true lease requirements under IRS rules. At the end of the lease term, you may either purchase the item for a fixed price, or sell the item to an outside party. You keep any profit on a sale to an outside party over the option price. However, if you sell the property at a loss, then you must make up the difference between the option price and the sales price.

Tax Advantages

The Tax Relief Act of 2010 and the Jobs Act of 2010 benefited the Section 179 deduction for leasing equipment in the 2011 tax year.

The latest changes include:

• The deduction on equipment for lease was raised to $500,000.
• A higher $2 million limit on the amount of business equipment that can be bought now applies. Software, as well as most new or used capital equipment may be included.
• Bonus Depreciation is now 100% for eligible assets, but doesn't apply to used equipment.