equipment leasing

Leasing companies broadly segment the market requiring equipment lease finance in three segments:

• Big-ticket: This market segment is characterized by leveraged leases and represents lease financing over $2 million.
• Middle market: This market segment is dominated by single investor leases and represents lease financing under $2 million.
• Small-ticket leasing: Transactions under $100,000, typically using conditional sale leases or single investor true leases.

From the perspective of the company availing of the equipment finance, there are several types of lease, which they can opt for depending on their specific requirements:

Business lease: A business lease refers to a transaction in which the lessee has entered into the lease transaction for business and commercial purposes. This type of lease is also known as a commercial lease.

Capital lease: A capital lease is required to be shown as an asset and is reflected on the balance sheet. The lease has characteristics similar to a purchase agreement.

Closed-end-lease: This type of lease does not contain a purchase or renewal option. This agreement therefore implies that the lessee is expected to return the equipment to the lessor at the end of the initial lease term.

Finance lease: This type of lease is based on a full-payout, non-cancellable agreement, such that the lessee is responsible for maintenance, taxes, and insurance.

Full-sayout Lease: The lease agreement in this type of financing scheme ensures that lease payments recover all costs incurred in the lease plus a mutually decided rate of return. This type of agreement does not consider the future residual value of the leased equipment.

Full-service lease: The lessor or leasing firm incurs expenses for additional services such as maintenance, insurance and property taxes such that the expense is built into the lease payments.

Net lease: Unlike a full-service lease, here the lessee pays costs of services such as: maintenance, insurance and property taxes. Therefore, lease rental does not include such costs.

Open-end lease: This type of lease requires the lessee to pay the amount of future residual value to be realized by the lessor after the expiry of the lease term. The amount payable by the lessee is the guaranteed value of the equipment minus the sale value such that the lessee pays for any deficiency vis-a-vis the sale value.

Vendor leasing: This type of lease involves a financing source and a vendor to ensure and promote vendor sales with adequate financial support from the financing firm. The financing firm ties up with the vendor to offer financing schemes, conditional sales contracts and leases to the vendors customers.