Operating lease & rental

Paying for the use of equipment, rather than financing its purchase.

How it generally works

With an operating lease or rental arrangement, the financier retains ownership of the equipment for the entire term. The business pays for the use of the equipment, similar to renting a property — the asset doesn't sit on the business's balance sheet as something it owns, and there's usually no obligation to purchase it at the end.

At the end of the term, the equipment is generally returned, upgraded to a newer model, or in some cases purchased — depending on what the agreement allows.

Worth knowing: Whether lease payments are treated as a straightforward operating expense depends on the specific agreement and current accounting standards — confirm with an accountant.

What tends to suit this structure

Equipment that becomes outdated quickly — computers, certain medical and diagnostic equipment, vehicles in some fleets — is often financed this way, since it avoids being left holding an asset that's lost much of its value or usefulness by the end of the term.

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