The word leasing has become one of the most used when talking about setting up a business under a franchise due to the high cost of properties or machinery that makes leasing a way to deal with all recurrent costs involved.

The leasing contract is one by which the Equipment Leasing Company transfers the right to use equipment in exchange of a rent for a specified period, after which, the lessee has the option to purchase the leased property by paying a price, return or renew the contract.

If your company chooses purchase the equipment from the Equipment Leasing Company, the price would be residual and it will be calculated on the basis of the original price or the good plus an interest rate including other expenses. If your company chooses not to buy the equipment, it is bound to either return it to the Equipment Leasing Company or extend the contract.

When it comes to leasing, you have three options:

One which we will call Financial. In this one, the Equipment Leasing Company buys the equipment for your company to use. However, your company would be responsible for all maintenance and repairing costs related to the equipment. The main attractive of this option is the accelerated depreciation which saves you money in taxes.

The second is a more Operational one. In this one, your company signs a contract with the Equipment Leasing Company which will cover not only for the use of the equipment but also for maintenance and reparation.

Back Leasing. In this one, the Equipment Leasing Company buys the equipment from you and then leases it back to your company. They pay for the sale but you can continue using it after paying a fee. This one does not have any tax benefit.

What are the costs leasing? The costs come from two sources: depreciation and interest rates. The first one is the most expensive one, and the last on is the cost of having money availability.

Leasing can be a good deal when a producer tries to put its excess inventory, increasing the residual value of their product considerably beyond its present value in order to achieve more attractive monthly payments, this is called Granting, which is a method widely used by companies to reduce their costs of leasing.

The factors that participate in the calculation of the cost or leasing are: equipment depreciation, interest rates, and tax reductions gained from the process. Low interest rates that arise from leasing are beneficial to small businesses.