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During the purchase of a new or used forklift, your company will be presented with financing options. Forklift leasing is a common business practice, and working with a forklift dealer to review the types of forklift leases, various terms and payments will help determine the best long-term purchase decision.
While there are different types of leases, the motivation for forklift leasing is typically one of three reasons.
Two popular forklift lease options are the $1 Option, also called the Full Payout Lease and the Fair Market Value, which is also known as an Operating Lease.
$1 Option: This forklift lease is ideal if the goal is to own the forklift at the end of the term. Your company may commit to a higher monthly payment to guarantee ownership. This type of lease is properly utilized in low hour applications where the actual useful life of the equipment is 6 years or longer. In addition, your company wants the forklift to be considered a capital asset and not a true line-item expense.
Fair Market Value (FMV): This lease lets your company finance the forklift during a specified period but you will not own the equipment at the end of the term. You can choose to turn in the forklift to the financing company, or purchase the equipment based on its fair market value at the expiration of the lease. While your company may experience a lower monthly payment with a FMV forklift lease, the contracted residual used to purchase the forklift off-lease will be higher than the value of the equipment. This lease is designed to trade out equipment at specified periods of time, but there are reasons you may want to purchase the forklift at the end of the term. However, it is the most expensive way to obtain the equipment as an asset. Proper consultation with a forklift dealer is needed and alternative options should be presented.
Finding the best forklift for your company is important to productivity, operator morale and employee safety. Before the purchase of a forklift and selecting your lease, work with a forklift dealer to answer these questions:
Knowing if your company wants to purchase the forklift is a question to ask prior to choosing a financing option. But the answer comes from exploring your workplace application and environment. For example, if your company has low usage and a fairly clean application, choosing the $1 option forklift lease to own the equipment is a good investment. At the end of the term, your budget would focus on regular maintenance and occasional repairs instead of a monthly lease payment. However, if your company is using the forklift for multiple shifts in a tough application, turning in the equipment at the end of a FMV lease term and securing a new forklift may help you avoid high maintenance costs.
It is important to note the $1 Option and FMV lease are not your only options. There are other financing alternatives that can, and should, be explored to ensure you are utilizing the correct financing option for your business.
If you have a question on this or any topic related to safety with your forklift, give our resident expert, Dave Bennet, a call or fill out the request form.