What are the lease-end Purchase Option Choices? American Business Leasing offers One Dollar, Ten Percent, and Fair Market Value Options. The One Dollar Option is what it sounds like. After successfully completing the lease term, the lessee (the end-user) is offered the entire equipment package for One Dollar. Ten Percent option means ten percent of the original cost, plus tax if applicable, and Fair Market Value (FMV) means “what a willing buyer not under duress and a willing seller not under duress would agree to.”
(In addition to these options, we also offer some very interesting programs with low, low payments in exchange for a ten percent purchase commitment.)
What are the good and bad parts of One Dollar Purchase Option Leases. The bad news is that the payments are higher than the other types of leases. The good news is that the “total cost of equipment ownership” is low and there are potential tax benefits. Every business is entitled to deduct a large portion of capital equipment purchases each year (Tax Codes Section 179). Because tax authorities recognize this type of lease as an intent to own, the entire cost of equipment may be used as a deduction in the first year . . . even though you have paid out only a small portion in lease payments. Talk to your accountant about this and all tax aspects of leasing.
Many leasing companies say that One Dollar leases have no tax benefits. Depending on the circumstances of your business, the tax benefits may be better or worse, but ignorance or profit-motive may be at work in those recommendations. Talk to your accountant.
What are the good and bad parts of Ten Percent and FMV Purchase Option Leases. Lower monthly payments are an important factor. Often these payments may be written off as expenses, simplifying accounting. If you definitely intend to trade-in or return the equipment at the end of the lease, choose FMV, but remember, you may be responsible for the value of the equipment if it is not in good repair (or missing) at the end of the lease. At American Business Leasing, we usually offer 10% and FMV option leases with the same payment rate; just let us know your choice before we prepare your contract.
This sounds fairly simple. What should I watch for? Some unethical leasing companies will “forget” to include the Purchase Option in the contract paperwork. Make sure you have it in writing BEFORE signing the lease. And make sure you have a fail-safe reminder to notify the lessor of your intention to buy within the time period allowed. This is important for all types of lease, or you may have to return equipment that you have paid for or continue to make “renewal payments.” At ABL, we consider a hard-core notification period to be an unfair gotcha. We have never denied a purchase option to a lessee who kept his part of the basic lease agreement, and we do not “automatically renew” your lease.