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Equipment Finance 101: Types of Finance Agreements

November 27th, 2017

Equipment Finance 101: Types of Finance Agreements

There are many different types of equipment finance agreements available to the modern finance manager, executive or business owner.

Learn the differences between them with our simple guide, below:

EFA:

An EFA, or equipment finance agreement, is a type of business loan where the customer takes ownership of the equipment upfront, and then pays the lender monthly, annually or under a schedule agreed on by both parties. It’s similar to financing a car.

FMV:

FMVs, or fair market value leases are designed for the customer that is looking for tax benefits. There is an option to purchase, but it is determined at lease maturity. FMVs are often limited to a certain amount of “usage hours” for the equipment on an annual basis.The customer can also obtain new equipment every few years, to keep operations running smoothly.

$1 Lease:

Unlike an EFA (equipment finance agreement), a $1 purchase option lease is when the lender owns the equipment until the end of the term. The lessee (customer) then has the option to return the equipment for new, or buy it for $1. Some industries or companies prefer this type of lease product, because it may have some accounting benefits.

10% PO Lease:

10% purchase option leases are for a customer looking for a lower payment with the knowledge they can buy the equipment for a stated amount at lease maturity.

Rental Agreement:

Two types of rental programs are typically available from a lender. One designed for companies who want to use the equipment for a specific period of time and return it (as stated in the contract, typically cannot be returned early). The other a short-term rent-to-own program, for companies who want to rent then buy the equipment later on.

If you’re interested in learning more about our national equipment finance services, please contact us for more information.


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