Fair Market Value Leases Explained!

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lease2Here are the Restaurant Blog, we’ve spent a lot of time talking about the different types of leases that are available to small business owners.  Our aim here is to provide the best information on alternative financing options for restaurants.  Because restaurants are often started with a small amount of startup capital, and the equipment needed to get a kitchen up and running is so expensive, it can be a wise idea to lease instead of buying outright.  In previous blogs, we’ve discussed the difference between capital and operating leases, and today we’re going to talk about Fair Market Value leases.

Fair Market Value leases are type of operating lease.  They typically have the lowest monthly payments of any lease agreements.  This is because the lessee has not decided whether or they will purchase the equipment at the end of their payments, and therefore is not playing for the full price of the equipment.  This means at the end of the lease lessee has several options: continue to lease the equipment, purchase the equipment, return it, or upgrade it.

The reason it is known as a Fair Market Value lease is because the price that the equipment is available for purchase at is adjusted to take into account inflation and obsolescence, otherwise known as its “fair market” value.  The contract can also be renegotiated, so that you can get the newest equipment, allowing you to stay on the cutting edge.  A Fair Market Value lease can be written off on your taxes as an expense, but does not qualify for the section 179 deduction.

The Fair Market Value lease is a perfect solution for the business that may not be sure how long they want to hold on to their equipment.  It is also a great way to stay up to date with the latest equipment.  Stay tuned, because next week we will be discussing the $1 buyout lease.  And as always, feel free to comment with any suggestions for future topics or with any questions you might have.  As always, the restaurant blog is here to answer all of your food industry questions!

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