The “Fair Market Value” Lease Option
FMV in FMV Lease stands for “Fair Market Value”. It’s also sometimes known as a “true lease” in business circles, probably because this structure was likely the original thought behind leasing.
An FMV lease is where a company leases a piece of equipment for a specified period of time, and at the end of the term, has several options, one of which is to purchase the item at “Fair Market Value” (the other options are usually “return the equipment” or “re-lease the equipment”).
An FMV lease offers a low monthly payment, is the most flexible lease structure, and may allow you to obtain tax advantages. Technically, you don’t own the equipment (think of it like renting over a fixed period of time). The equipment may not be considered an asset on your balance sheet. Depending upon your situation, up to 100% of the finance expense may be tax deductible. At the end of the lease term, you may purchase the equipment, return the equipment to the finance company, or continue to pay for use of the equipment according to the terms of the original agreement.
- Little or no upfront cost
- Lower monthly payments than $1 out purchase option leases
- 100% financing may be available
- Can return the equipment at the end of lease without further obligation
- May have significant tax and accounting benefits
Why would a company want an FMV lease?
- A company is leasing equipment that rapidly depreciates in value. Vehicles often fall under this, as does technological equipment. Also, if a company fears the “new and improved model” is right around the corner, and their leased equipment will be obsolete soon, a FMV lease makes sense if they need the equipment now.
- Of course, like many other leases, the payments on the FMV lease are tax deductible, and the equipment is not on the company’s balance sheet.
- Because the lessor is guaranteed “fair market value” for the item at the lease end (either if the lessee decides to buy it, or they return the equipment and the lessor sells it secondhand), the lease payments are lower than other leases.
Your lease payments are generally determined by what the lessor feels the value will be at the end of the term (which may or may not be 100% accurate). So in essence, you are paying for the value / life of the equipment that you actually use.
The Envision Capital Group Process
With a few mouse clicks, you’ll have the equipment financing you need at rates and terms that are right for your business. Our entire funding process is quick and hassle-free. Small business owners, equipment vendors, franchise owners, and middle market executives nationwide look to Envision Capital Group for their financing needs. Our commitment to fast, dependable funding and great service has helped us achieve full A+ accreditation with the Better Business Bureau (BBB). We also have dozens of customer testimonials throughout social media that will give you insight into what it’s like to work with us.
If you have questions contact Dan Lund at 949.225.1718 or firstname.lastname@example.org.