Leasing equipment is a great way for business owners to obtain the equipment that they need while maintaining steady cash flow. Instead of purchasing equipment straight up (and spending thousands of dollars in the process), you can lease the equipment you need for a set period of time at a set amount.
Now, what happens if you don’t need just one piece of equipment? Let’s say that you are a manufacturing company and there are many different pieces of machinery that must be replaced on an annual basis. In order to avoid signing into a new lease contract with new terms and conditions each time, consider a master equipment lease.
How Does a Master Equipment Lease Work?
A master equipment lease is particularly beneficial when leasing a variety of equipment within a one-year time span. How does it work? Well, first you’re approved for a minimum dollar amount at a low rate. Next, you finance all of your equipment needs against that borrowed amount at a fixed rate. If you borrow against all of your given amount within the first 3 months, your rate remains the same. If it spans out across the remaining 4-12 months, your rate is subject to change. However, your rate will always be less than if you chose to lease each piece of equipment separately.
For the growing business: don’t waste time vetting lenders in a crunch as equipment breaks or malfunctions. Master lease agreements save time by drawing on that original line of credit.
The Difference Between a Master Equipment Lease and a Traditional Equipment Lease
A traditional equipment lease includes one piece of equipment that is leased out to a company for a specified period of time. At the end of the term, the lesee can choose to either purchase the equipment at fair market value, extend the lease, or turn in the piece of equipment. This is a great option for a smaller company that utilizes only a few pieces of equipment that last for 7-10 years.
On the other hand, a master lease agreement follows the same concept, but the contract pretty much serves as an "umbrella" agreement. This means that you have the ability to add additional pieces of equipment onto the lease. This option is favored by larger companies who have the need to lease multiple pieces of equipment on a yearly basis.
Benefits of a Master Lease Agreement
There are many advantages to acquiring equipment under a master lease agreement. Here are our top four advantages:
- A master lease agreement is basically a line of credit. Therefore, you can purchase new equipment within the allotted timeframe without having to go through the underwriting process more than once.
- New pieces of equipment can be added to the same agreement without the need to formulate a new contract or renegotiate terms.
- The financing rates are usually lower than that of a traditional equipment lease.
- You can budget ahead of time and know the exact amount that will be spent on the upcoming year’s equipment prior to obtaining it.
The Bottom Line
Is this something that your business could benefit from? It won't hurt to talk to one of our leasing specialists about the available options!