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Popular Leasing Equipment Terms
Whether leasing office furniture, computer systems, or heavy construction or industrial equipment and machinery like tractors or forklifts, it is important to understand the terminology associated with leasing before signing a lease agreement. Below are several terms to be familiar with before signing a lease or other binding rental agreement.
Application Only Program - A streamlined credit application and review procedure that only requires the submission of a single page application with basic information about the business' principals, bank and trade references. This type of program does not require financial statements, tax returns, business plans or other more detailed disclosures in order to rent or lease machinery, vehicles, office furniture, other items or equipment.
Cash Flow - Cash flow is a measure of a businesses ability to meet Lease obligations. Cash flow is calculated by adding the businesses Net Income to its Depreciation Expense for a particular period and subtracting the Current Portion of Long Term Debt. The remainder of this formulation is the available cash to service new lease obligations.
Economic Life - Also referred to as Useful Life, the term Economic Life refers to the period of time during which an asset will have economic value and be usable.
Security Deposit - Security Deposits are paid at, or prior to, lease inception. Security Deposits protect the Lessor by offsetting losses due to unreasonable wear and tear to returned equipment, the non-return of equipment, or any other costs incurred due to the Lessee's actions of negligence.
Residual Value - The remaining or resale value at the end of the original lease term. The remaining value is referred to as the Residual.
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Heavy machinery and equipment like tractors and forklifts can cost a lot of money to buy outright. That's why it may be more economical for some people to lease this equipment for a short period of time, whether for a one-time project or ongoing construction job. Leasing equipment can refer to construction vehicles, or it can refer to credit cards for merchants, for example. It can also refer to medical equipment, computer systems, fitness machines, and industrial equipment as well.
Leasing equipment companies may focus on a particular item or set of items, like construction machines and vehicles, while others may provide a wide range of items, from computer supplies to furniture. Many boast low financing rental or lease rates to help grow a business or spread the cost out evenly over the term of the lease. This allows customer to free up more money to pour into their business.
Consumers may find equipment for lease or rent online or within warehouses or stores. They may find that such companies offer a wide range of equipment for lease, such as those meant for manufacturing, dry cleaning, restaurants, offices, and woodworking industries. This is often a desirable option as opposed to buying because it allows clients who are just starting out to save crucial money on such a large component. It also allows clients to “test drive” equipment before making the plunge and buying new equipment.
A company in this line of work may offer vendor kits, newsletters, online applications, and consulting and training. Business offices in need of new furniture, for example, may be able to benefit from leasing equipment providers.