Lease Types

In its simplest terms, a lease is a contractual equipment usage agreement between the equipment owner (lessor) and the equipment user (lessee). The lessee pays the lessor a monthly lease payment for the rights to use the equipment. The amount of the monthly lease payment is a function of the original equipment cost, the length (“term”) of the lease, and the lessor’s cost of funds. Other components of the monthly lease payment may include property taxes, sales/use taxes, insurance charges, and any other expenses associated with the transaction such as maintenance charges and fees for documentation and filing.

The expected value (or residual value) of the equipment at the end of the lease term is also taken into consideration in the pricing of most leases. A higher anticipated residual value usually translates into lower lease payments for the lessee.

While many leasing companies may use the same name to describe a lease, the actual terms and conditions written in their contracts often vary. At Specialty Funding, we always recommend you carefully review any leasing documents and ask us to explain anything that is unclear.

True Lease or Operating Lease

  • Best For: Equipment that will rapidly depreciate or become obsolete in a short period of time – i.e. some forms of computer equipment.
  • How It Works: In a true or operating lease, the leasing company retains ownership of the equipment during the lease. True or operating leases typically have no predetermined buyouts – customers usually classify these payments as an operating expense.
  • Benefits: Lower payments and typically the most tax-friendly form of leasing, Additionally, true or operating leases offer three choices at the end of your lease:
    • return the equipment to the leasing company
    • purchase the equipment at its fair market value or option amount
    • extend your lease term.

Finance Lease or Capital Lease

  • Best For: If you would prefer to own the equipment when the lease agreement ends.
  • How It Works: The full purchase price, plus interest, is spread over the length of the lease agreement.
  • Benefits: At the end of the lease, you own the equipment for a minimal payment, usually $1.00 or a small percentage of the original purchase price.

Flex Lease

  • Best For: Seasonal businesses, agricultural companies, recreational services firms, and other organizations that have unique cash flow requirements.
  • How It Works: A payment schedule is created to fit your cash flow needs; i.e. skip certain months of the year, make quarterly – semi-annual payments – or annual payments.
  • Benefits: Flexible, in that it can be adjusted to irregular cash flow.


  • Best For: Customers who have purchased their equipment, but now have decided that leasing would be more beneficial. Sale-leaseback also allows companies to raise cash for other investments or cash flow purposes.
  • How It Works: The business that has already purchased equipment sells it to a leasing company, which then takes ownership of the equipment and leases it back to the business. This requires that the equipment be purchased within 90 days.
  • Benefits: The sale-leaseback allows you to put money back into your business or into investments that appreciate rather than depreciate.

30 Day Deferred Lease

  • Best For: Businesses that need equipment for operation and development that will not immediately generate revenue.
  • How It Works: A 30-day deferred lease can be structured as a finance lease or a true lease. With this form of lease, there is usually no advance payment required, and the first payment is not due for one month after the lease begins.
  • Benefits: The equipment you need can be acquired with little to no money up front.

Master Lease

  • Best For: If your leasing requirements will likely be expanding over time.
  • How It Works: Separate lease schedules are created to accommodate the addition of equipment over a period of time of your specification. The master lease governs the basic terms and conditions. Each schedule may include different end of term options and different lease lengths but all will come under one “Master Lease.”
  • Benefits: Acquiring additional equipment is made more convenient.

Municipal Lease

  • Best For: Local and state government organizations that wish to acquire equipment.
  • How It Works: The tax structures and details of municipal leases will vary considerably from standard business leases. Seek the advice of your financial advisor to better understand your municipal lease options.
  • Benefits: Municipal leases are designed specifically for local and state government organizations.

Step Up Lease

  • Best For: Businesses whose financed equipment will allow more profitability over a period of time.
  • How It Works: Payments increase according to a regular schedule over the life of the lease.
  • Benefits: Payments can be structured to match current cash flow.