Interested in financing a new forklift and unsure whether it's better to lease a forklift or buy the equipment outright? Depending on your cash flow, capital requirements, equipment condition and usage, there are benefits to both options.
Many buyers think, “of course we would like to own the equipment,” but that's not always the best option. Sometimes the numbers don't work out.
Different Types of Finance Contracts:
Finance contracts can provide flexible payment terms including contracts from 12-72 months and can be set up with seasonal structure to help cash flow during the slower seasons. This is referred to as a “Flex Lease.”
Forklift leases can be based on the number of hours accumulated, ie., 700, 1200, 2000. The lower the hours, the lower the payment, so the leasee only pays for the use of the forklift. It is also important to note that the charge for over-time hours can be substantial so it is prudent to understand these fees before a contract is signed.
Split terms are also available which provide an optional lease extension. As an example, a 36 month Lease with a 24 month extension will provide an option to return the equipment at the 36th month or 60th month. Payments are generally lower in the second part of this contract.
Some contracts allow you to buy the equipment at the end of the lease, but you need to decide that in the beginning. There are Operating Leases (also known as a Fair Market Value Lease) and Finance leases (Dollar Buyout or Capital).
One of the key benefits to an Operating Lease is they are an off-balance-sheet transaction and considered an operational expense. In other words, lease payments can usually be deducted as business expenses on tax returns, reducing the net cost of the lease. ,
Operating Lease payments are also generally lower than fully paid out finance contracts where ownership is transferred after the last payment is made. In a purchase situation (fully paid out contract), the equipment would be listed as an asset and the depreciation taken accordingly.
Important Considerations
Working capital and cash flow are concerns for many businesses, especially for newer companies. Opting for a lease in order to conserve capital for inventory expansion, product development, and other more profitable uses of cash can be a better choice than investing in equipment which will depreciate over time.
Maintenance costs and trade-in/resale value should also be considered. Market values for equipment will fluctuate depending on economic conditions, equipment brand, specifications, maintenance history, and condition. Maintenance programs can be included as part of a finance contract, keeping forklifts in top condition and reducing down time.
Technological advancements on new equipment may also render older equipment less desirable, thus reducing value. Once the final operating lease payments been made, equipment disposal is the responsibility of the finance company.
Before you decide...
Consult a CPA before making a final decision. Request a sample lease document in advance, and be sure to review the terms and conditions before signing. Pay attention to equipment return condition requirements. Forklifts that do not meet required lease conditions can be subject to repair fees, which can add up quickly.
We hope this information has been helpful.. Please contact our Sales Department at (510) 675-0500 with any questions or for an evaluation of your forklift financing needs. Our experienced team will be happy to assist you.
Further Reading:
- Is it Better to Lease or Rent a Toyota Forklift?
- Top 5 Benefits of Renting a Forklift
- Finance Application
