Business Telephones - What are My Lease Options?

By: Steve Norris

For numerous companies, paying cash for a large purchase such as a new business telephone system is simply not in the budget. In the absence of that option, companies turn to equipment leasing to provide the technology their company needs.

There are several "Lease" options or flavors to choose from. Let's cover the three most common....

Fair Market Value Lease or FMV: Often referred to as a "rental" program. At the end of the chosen term, (Typically 36-60 months) you DO NOT own the equipment. If you wish to purchase it at the end of the term, you pay what is considered "Fair Market Value" for the equipment at that time. Of course, what the leasing company will consider to be "Fair Market" and what you consider to be "Fair" will often be worlds apart.

This will ALWAYS be the lowest monthly payment option, and is a good option if you will look to change technology at the end of the chosen term. This option meets FASB 13 requirements, so you can write the entire amount off every month as an operational expense. FMV leases can be a great option as long as you understand what you are getting into. This is perfect for the company that wants to maintain new technology in their office at the most cost effective price.

$1 Buyout Lease: The $1 Buyout Lease is a very common choice for businesses depending on how long they intend to own their equipment. At the end of the agreed upon term (Typically 36 or 60 months), for a $1 buyout, you own the equipment outright. Using this method, your company will need to choose to depreciate the system over time for tax purposes. (Often 7 years for full amortization) You typically will have to depreciate it over a longer period than you have the equipment leased for. Some recent tax law changes may allow you to take the deduction all at once up front in year one depending on the amount, so this may not apply. This option is great for the conservative company that plans on owning the equipment for the term or beyond, and that would prefer not to use their available capital on a cash purchase.

Shield Lease: Shield is an option that not too many companies know anything about, but it is becoming increasingly popular with tech savvy companies. Very few vendors offer it or even know about it, but for the right circumstance, it may be ideal for your company’s technology strategy. Are you concerned that you are spending an arm and a leg on equipment that may be obsolete in a few years? Have you been waiting for voice activated flux capacitors and new little doohickeys that will make your life so easy that you have neglected making a decision? Is your company equipment old due to “the wait?” With a Shield lease, you can upgrade your equipment at ANY time without penalty with a few small caveats. The dollar amount of the lease has to be for $1 or more higher per month than the original lease amount, and the lease has to be for the same term or longer as the original agreement.

Shield programs also meet FASB13 requirements as an operational lease, and will typically cost between what a $1 Buyout and Fair Market Value lease costs. It protects your company from technology obsolescence. Literally for no penalty, you could change your equipment out AT ANY TIME. The Shield Lease is also ideal for the growing company that may outgrow their current system or one that may want to maintain the greatest amount of financial and technology flexibility. Shield is not available with all systems types. Check with your telecom professional to see which lease option will best fit your company.

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