What is the difference between an Operating Lease compared to a Capital or Finance Lease?
Operating Leases offer the lowest monthly payment and the entire payment amount can be treated off-balance sheet and deducted as a business expense. An operating lease is generally used when products go through rapid technological changes and technological obsolescence is a concern, or when additional test capacity is acquired without using any capital expenditure budget. At the end of an Operating Lease, several return, renewal, or buyout options are available. A Capital or Finance lease is typically a full-payout or low-residual lease, where the asset is capitalized on the balance sheet. This is a good option particularly for those wishing to own the equipment. At the end of a Capital or Finance lease, the title is transferred to the lessee at the end of the term, upon the payment of a nominal fee. Consult your accountant or tax representative to determine the proper classification of lease.
