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Choose the right structure for your business. We compare the FMV Lease against traditional loans, highlighting the FMV's benefits for lower monthly payments, cash flow conservation, and easier equipment upgrades.
When financing essential equipment, the choice often comes down to owning (a loan) or leasing. Within leasing, the Fair Market Value (FMV) Lease is a powerful option for businesses that prioritize low monthly payments, frequent equipment upgrades, and maximum tax flexibility.
Unlike the $1 Buyout Lease (where ownership is the goal), the FMV Lease is structured for efficiency, positioning NLCG as a partner in managing equipment lifecycle, not just debt.
An FMV Lease is often considered an "Operating Lease" for accounting and tax purposes, making it function more like a long-term rental.
Lower Payments: Payments are calculated based only on the depreciation of the equipment over the lease term, not the full purchase price. This results in significantly lower monthly payments compared to a loan or a $1 Buyout lease.
The lessee has three flexible options: Return the equipment to the lessor (no further obligation); Renew the lease for a continued period; or Purchase the equipment at its current Fair Market Value.
Tax and Cash Flow Advantages
Choosing an FMV Lease is often a strategic decision driven by tax and cash flow management.
1. Maximize Tax Deductions
A primary benefit is the tax treatment. Under IRS rules, if the agreement is classified as a "true lease," you may be able to deduct the entire monthly lease payment as a rental expense from your taxable income. This can provide greater short-term tax savings compared to depreciation deductions from a loan. Consult the IRS’s official guidance on business leasing to confirm the specific treatment for your business.
2. Conserve Working CapitalBecause payments are lower and the lease often requires no large down payment, the FMV Lease is superior for conserving working capital. Internal NLCG Analysis shows that freeing up cash for operations, marketing, or inventory often provides a greater return than immediately owning a depreciating asset.
3. Adapt to Evolving TechnologyFor equipment with rapid technological obsolescence (like diagnostic medical devices), the FMV lease is ideal. You can simply return the old asset at the end of the term and immediately upgrade to the newest model, eliminating the risk of being stuck with outdated hardware.
The FMV Lease is the right choice if your primary goal is low monthly cost and maximizing flexibility.
Choose FMV if: You expect the asset to be obsolete in 3–5 years, or if you prefer to write off the entire payment as an operating expense.
Choose a Loan/$1 Buyout if: You intend to own the asset for its entire useful life (7+ years) and want to utilize accelerated tax depreciation (like Section 179).
