As a firm looking to acquire equipment, you have several choices as to the type of financial instrument best fits your needs.  In the ‘90’s equipment leases seem to be the  best fit for most companies as they had the advantage of expensing the monthly payments and returning the asset at the end of the lease term and get the newest and best.  Additionally, if the lease were structured properly, it might qualify as an “off balance sheet” transaction.  But, technology began to change on an almost daily basis and lenders began to impute lower and lower residual values.  That coupled with new tax laws including IRS Code Section 179, the ability of a business to expense the entire amount in the year the asset was put into service moved the pendulum more towards the Equipment Finance Agreement (loan).  Below is an explanation of each.

LEASE:  A lease is an agreement where the asset is sold to the Lessor and shipped to the Lessee or the Lessee’s designated location.  Title to the asset remains with the Lessor throughout the term of the agreement.  At the end of the agreed upon term the asset is purchased at a predetermined price, negotiated price, or returned to the Lessor depending on the Lease terms.  During the term of the agreement the Lessee is responsible to not only make the agreed upon payments, but also insurance, property taxes, and other requirements of the agreement.  Most leases fall into the following end of lease categories:  $1.00, 10% of the original cost, Fair Market Value (an amount that a willing buyer and a willing seller can agree upon), or return to the Lessor 

FINANCE AGREEMENT:  One of the key differences between a Lease and a Finance Agreement centers on the ownership of the asset at the time the agreement is consummated.  In a finance agreement, the vendor sells and ships the asset to the endebted party and title passes at that time.  The asset is held as collateral for the Agreement until the final payment.