What is a Net Equipment Lease ?
A net equipment lease is essentially a long-term leasing agreement in which the owner of the equipment permits the user to use or operate the equipment in exchange for monthly lease payments. The owner is known as the lessor in leasing parlance, and the user is known as the lessee. Leasing equipment is a common choice for businesses of all sizes. According to the Equipment Leasing Association of America, 80 percent of all businesses lease at least some of their equipment.
Most financial leases are “net” leases, which mean that the lessee is responsible for maintaining and insuring the asset, as well as paying all applicable property taxes. Businesses frequently use financial leases to acquire expensive capital equipment.
Why use a Net Equipment Lease ?
Companies can finance capital equipment with debt or equity. Net leases are a type of debt-equity financing since they behave like loans, must be represented as liabilities on balance sheets, and are also handled as liabilities.
For most small firms, the primary reason for leasing is cash flow—the ability to receive equipment today without a large upfront outlay. Some organisations that can afford to buy prefer to lease since their tax situation prevents them from taking advantage of depreciation.
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