Equipment leasing and equipment financing are often seen as similar, and in a big picture sense, they are (you get equipment, and you make payments on it). But the details of the two are quite different, with equipment leasing having many more moving parts and somewhat arcane terms.
For the next few posts, I’d like to go over some of the finer aspects of equipment leasing, and what some of the language means. Things like lease contract wording and phrase definitions (lease term, residual value, monthly rent, etc.), how the residual value and terms affect payment amounts, wear and tear conditions, the importance of having insurance, renewal options (aka, what happens at the end of the lease), and perhaps a few more. It’ll take a bunch of posts.
One of the reasons I wanted to do this series is the terms and phrasing can be a little confusing to people not in the lending industry. I had a customer ask about “monthly rent” recently, because that’s what the lease agreement said. He jokingly said “what, am I getting an apartment from you too?” I had to laugh because he’s right – we generally associate that phrase with housing, not equipment. But it’s there, and it does have meaning (I’ll address monthly rent and other terms next post).
Note that we’ll be generally talking about Operating Leases here, which are off-balance sheet leases where you don’t actually own the equipment. There are other types of leases available, but they are closer to finance agreements than a true off-balance sheet lease (for example, on a $1 buyout lease, you actually own the equipment from day one.) To help you sort these out, you can look over all our equipment lease and loan agreements here.
I hope you enjoy this series, and that it answers a few questions that may have been in the back of your mind. At the least, after reading the next few posts, you’ll know more about leasing than most people – stay tuned!