Fair Market Value Or $1 Buyout Lease? What You Need To Know To Decide

For those new to equipment financing, it is helpful in explaining the basics of an FMV lease vs a $1 Buyout Lease. The Equipment Leasing and Financing Association (ELFA) does a great job of this in their article, which also provides 5 key questions to consider in selecting the type of lease that best meets your business’ needs. We’ve summarized it below. 

Preserving capital is a top priority for smart business owners, especially in startups and small businesses. Equipment financing provides a way to acquire the tools needed to operate and grow without large upfront payments. Leasing can help businesses manage cash flow, reduce risk, and access technology or equipment they might not otherwise be able to afford. Understanding the differences between fair market value (FMV) leases and $1 buyout leases is critical to making the right choice.

Understanding FMV and $1 Buyout Leases

An FMV lease is an operating lease where you use equipment for a set period at a lower cost than purchasing outright. The financing company retains residual value at the end of the lease. You may have the option to continue using the equipment at a reduced rate or purchase it at fair market value.

A $1 buyout lease is similar to a finance lease or capital lease. It enables the end user to own the equipment at the end of the term, often with 100 percent financing and no down payment. This option allows businesses to claim depreciation and interest expenses for tax purposes.

Benefits of FMV Leases

FMV leases offer multiple advantages:

• Accurate budget planning and predictable payments

• Lower overall cost of using the equipment

• Elimination of equipment obsolescence risk

• Outsourced management and disposal of assets

• Bundled services, including lease tracking and maintenance

• Suitability for long-life equipment, seasonal projects, or technology that may become outdated quickly

When a $1 Buyout Lease Makes Sense

$1 buyout leases are ideal for businesses that want eventual ownership and full use of tax benefits. They are commonly offered as manufacturer incentives and provide 100 percent financing, preserving cash for other business needs.

5 Key Questions to Consider

When deciding between an FMV lease and a $1 buyout lease, ask yourself:

• How long will the equipment be needed?

• How quickly will it become obsolete?

• Does your business have the resources to manage assets through their lifecycle?

• Will you need additional equipment as your business grows?

• Will the equipment be used for a new or uncertain venture?

Making the Best Choice

Both FMV and $1 buyout leases provide benefits that purchasing with cash cannot. The right choice depends on your business goals, growth plans, and the resources available for equipment management.

Call to Action

Want to find the financing option that works best for your equipment needs?

Contact TFC today to discuss FMV and $1 buyout leases and discover how we can help your business grow efficiently.

About TFC

Founded in 2004, TFC provides equipment financing services to a wide variety of companies from early stage to Fortune 100 and everything in between.
TFC and parent company, Kingsbridge Holdings (part of SLR Investment Corp.) have over $1B of assets under management.