A Basic Guide to FMV Leases
Funding Well Capital has assisted a vast number of clients with financing programs allowing them to start or grow their businesses. Many of our customized plans involve different financing options because different scenarios call for different lease types. Fair Market Value (FMV) leases are one of the many types of leases and financing options offered at Funding Well Capital.
What is a FMV Lease?
When financing equipment, the lessee is given the right to buy whatever was leased back at the end of the lease for a price that represents the current depreciation value of that equipment. The buyback price isn’t set an agreement; rather it’s assessed at the fair market value at the expiration of the lease. The word ‘fair’ indicates that the lessee is to pay no more for what that equipment is worth, and the lessor receives no less.
Why Obtain a FMV Lease?
- When financing equipment, the relationship between the lessor and lessee is mutually beneficial in many industries. Because of the potential for an after lease purchase, monthly payments tend to be significantly lower than a dollar buyout lease, for example. In a dollar buyout lease, the expectations are for the lessee to purchase the equipment at the end of the agreement and operate as the owner of the equipment throughout the terms of the lease.
- As equipment depreciates and gathers wear and tear, the option to decline ownership at the end of the lease is great for the lessee. Owning equipment with little value can be a burden, which is why we encourage our clients to finance in many instances.
- You also receive fixed, predictable payment throughout the term.
- FMV Leases tend to be flexible and customizable, making setting up a plan negotiable for both sides. This is in comparison to rigid financing programs with strict terms.
- FMV leases are also fully tax deductible as an operating expense.
When isn’t FMV best?
Depending on the type of equipment you need, a FMV lease might not be the best option. Capital leases (another term for dollar buyout leases) are great for equipment that has a good deal of value after the end of the terms (which usually range anywhere from 12 to 60 months). If you’re seeking ownership of equipment at the end of the term, it’s best to explore more beneficial options.