Leasing equipment: What you can lease and how you can lease it

Just about anything you can think of can be leased -- from aircraft to pencil sharpeners, says Stephen Galop at UniCapital Business Credit Group in Miami.

"Obviously, pencil sharpeners would be part of an overall package of office equipment, including such items as furniture, computers, phones, wiring and cable. Basically, you can lease any type of equipment. What you cannot lease are consumables," Galop says. "In other words, you can lease a copier, but not the paper or ink for the copier."

Leases come in three sizes:

• Small ticket leasing: Equipment with an original purchase price of no more than $100,000
  
  
• Middle market leasing: Equipment valued at $100,000 to $2 million.
  
  
• Large ticket leasing: Equipment value exceeding $2 million.

Insurance and maintenance obligations generally fall to the lessee. However, an advantage to leasing is that a small business owner may also include these expenses within the lease agreement -- further preserving operating capital. The lessee will still have to pay the full price of the additional expenses, but he is able to spread out payments so that a little is paid each month and he avoids making large payments on a quarterly or biannual basis.

Types of Leases
Leases generally come in two forms: operating leases and finance, or capital, leases. An operating lease is used for short-term leases of high-tech and other equipment that tends to become obsolete fast.

A finance lease lasts longer and generally covers the purchase cost of the equipment by the time it is completed. It generally transfers ownership of the equipment to the lessee at the end of the lease and contains a bargain purchase option. David Tull, chairman of Crestmark Bank in Troy, Mich., explains that "the finance lease is particularly useful from an accounting perspective because you can claim rentals as an expense; the equipment is not required to be listed as an asset."

Galop illustrates when to use each type of lease with a couple of hypothetical examples:

"Say one client is opening a real estate office and wants to lease all of his office equipment. This is not what is normally considered a "power user," so whatever computers and phone lines he installs will not require significant upgrades over the next five years. He would be best suited for a finance lease.

"On the other hand, say an engineering company opens up just down the hall. This owner is far more likely to be a high-end "power user," so I would recommend no longer than a three-year operating lease for his computer equipment."

A third lease option is the sales-leaseback transaction. When a business owner decides he needs more operating capital, he can sell the equipment he is currently using to a lessor, and then lease it back. This provides him with immediate cash flow and allows for long-term fixed lease payments. The lessor becomes the new owner of the equipment and benefits from the associated tax break.