What is a Fair Market Value Lease?

By March 6, 2020Uncategorized

Fair market value (FMV) is a term for the current value of an asset, or what something would sell for on the open market. Fair Market Value leasing, also known as an operating lease, offers end-users flexible financing solutions.FMV leasing allows end-users access to equipment assets with the flexibility of ownership, through options such as extending the lease terms, purchasing the equipment for a fair market price, or returning, or upgrading it, at the end of the lease.

End-users simply pay a fixed amount per month, in accordance with their leasing contract, and essentially gain temporary ownership of the equipment. The FMV lease typically offers the lowest monthly payment, is the most flexible lease structure, and may allow end-users to obtain tax advantages.

At the end of the lease term, end users have the option to purchase, return, or continue to pay for use of the equipment according to the terms of the original agreement. While Fair Market Value leasing is the most flexible leasing option, it’s the least calculable when it comes to anticipating a purchase price. The FMV purchase price takes into account many variables such as the improvement of the technology, the equipment’s condition and expected lifespan, and the used equipment’s market demand.

The most common alternative to the FMV leasing option is the $1 buyout lease, also known as a capital lease. This financing option resembles purchasing the equipment with a loan. There is typically a higher monthly payment for the $1 buyout option versus with an FMV lease, however, at the end of the lease term, end users are able to purchase the equipment for $1. Because this option is very similar to taking out a loan on a piece of equipment, this type of lease is most often used when a business plans to keep the equipment for a long period of time, or when equipment obsolescence is not a concern.

Users typically select the FMV buyout option for technology-based equipment in order to avoid the equipment obsolescence from the constantly changing dynamics of technology-based equipment. For the $1 buyout option, clients are typically less concerned with this uncertainty and choose it for assets with longer life cycles, such as construction, manufacturing, cleaning, and automotive repair equipment.

At Blue Street Capital, we understand that your business needs affordable financing options to acquire the equipment you need to support your business. We offer both Fair Market Value and $1 Buyout leasing options, so you can choose an option that best fits your business needs. As our client, we can walk you through all of your options to help determine the best equipment lease and finance solution for your business. Regardless of the buyout option you choose, Blue Street Capital will develop a flexible, customized, and competitive financing solution for your lease and preferred buyout choice to help you grow your business.