A capital lease, also called a finance lease, is an agreement in which the lessee will purchase the equipment when the lease term is up. For example, an equipment leasing company purchases the equipment you have selected for your business. You will have use of the equipment during the length of the lease. Also called a dollar-out lease (capital lease), the lessee may purchase the equipment for one dollar at the end of the lease term.
What Are the Advantages?
Capital or Finance leases are advantageous to the lessee because of the convenience of monthly payments for the length of the lease, rather than paying in full upfront or taking out a loan, since this lease is designed with the understanding that the lessee will purchase the equipment at the end of the lease. A capital lease can help to ensure that your business is getting the equipment needed to be successful, without the expense and time that can be involved with securing a loan.
Accounting and tax benefits
When you utilize a capital lease agreement to obtain your equipment the lease is considered an asset of your business and payments appear on your balance sheet. You are also able to claim depreciation and interest on your tax return because you are classified as the owner of the equipment. We advise our clients to always check with their accountants for complete details.