Commercial leases come in two main categories — capital or operating lease agreements. Capital leases meet one of four standards set by the Financial Accounting Standards Board: lease life exceeds 75 percent of asset's life, if ownership is transferred to lessee at end of term, if lease agreement includes a purchase option with a "bargain price", or if discounted rate value exceeds 90 percent of the asset's fair market value.

Businesses usually enter into capital leases as a way to acquire an asset without having to pay for it upfront, thus avoiding the loan process. Whether you are buying equipment or leasing warehouse space with an option to purchase, a capital lease can be the answer. To learn more about capital lease agreement basics:

1. Get a good understanding of the key terms and definition of a capital lease.

2. Learn about capital lease agreements from experts with the latest information on trends and standards.

3. Compare capital and operating lease options.

Action Steps
The best contacts and resources to help you get it done

Understand the definition of capital lease, and get acquainted with key terms

Find the definition of a capital lease and information including commercial lease definition through financial educational websites. Review the lease terms, purchase agreement, loan and payment definitions, and learn how fair market value affects a capital lease.

I recommend: Use the dictionary at BNet to get a better understanding of how a capital lease works, or use the lease information provided by the New York University/Stern School of Business.

Use expert information to gain knowledge about commercial leasing: capital lease for beginners

Read financial publications, and get advice from financial industry experts about commercial capital leasing options, their benefits and downfalls. Once you understand the basic key terms, start researching specific types of capital lease options. Learn how they relate to your organization. Keep in mind that assets leased through a capital lease are considered liabilities for your company, thus affecting your balance sheet and taxes.

I recommend: Use the capital lease information provided by Wise Geek to get a better understanding of how capital leases can work for you. You can also compare your asset leasing and buying options with the help of Southwest Bancorp.

Compare the two types of commercial leasing: capital lease versus operating lease

Make sure you understand the four deciding factors that distinguish between a capital lease and an operating lease. Get help choosing which lease would work best in your situation, and learn all the basics before leasing or buying any business assets. Learn why entering into a capital lease creates a liability on your balance sheets, but signing an operating lease keeps you clear of all financial implications.

I recommend: Read the comparison article at Capital Resources LLC to learn the differences between the two lease types. Review the in-depth "Capital and Operating Leases Research Report" put out by the Federal Accounting Standards Advisory Board.

When you’re looking at commercial leasing, capital lease agreements will most likely garner your consideration. Capital leases differ from traditional operating leases in several ways. Instead of borrowing the property from the lessor, you’re leasing the property with the intention to buy at the end of the lease agreement.

You’ll find numerous benefits to commercial capital leasing. For instance, you can pay for the property over time without the need to take out a loan. Also, you can use the property or equipment immediately instead of waiting until it’s completely paid off.

1. Find out the advantages of capital leasing. You’re going to want to determine whether you’re better off financially leasing commercial property instead of buying.

2. View the terms of multiple commercial leases. You’re going to want to find out about payment, ownership transference and commercial lease termination options.

3. Send in a commercial lease application. After you have compared rates from several different institutions, you can send in a capital lease application.

Action Steps
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Use a commercial lease calculator

Before you decide on capital leases to finance your property, you'll want to determine the monthly payment you can expect from the arrangement. Place these figures against purchase prices to determine the financially viable option.

I recommend: You can find a free and easy to use lease calculator on the First Command Educational Foundation website. Plug in your numbers and receive a quick computation. You can also use a lease versus buy calculator on Lease-vs-Buy.com. You can also run reports using the data you have entered.

Look at capital lease agreements

Financial institutions will offer different terms for their capital lease agreements. You may have a buy out option that allows you to purchase the property ahead of your lease schedule. Agreements will also cover damage surcharges and interest rates.

I recommend: Look at the terms and conditions on the sample agreement on AllLaw.com in order to get an idea about what to expect from capital leases. You can also receive quotes and different commercial leasing options from the Equipment Leasing Experts.

Apply for a commercial lease

Once you have decided to move forward with commercial capital leasing, you can begin the application process. Your financial officer will require financial records and information about your business in order to process your application.

I recommend: If you want quick lease processing, then fill out an online application for a commercial lease through LeaseProcess. You can also download and fax the form. For more leasing options, check out the eLease International website as well for your commercial equipment leases.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  You're going to want to look at fair market value prices prior to taking out commercial leases. You should ensure that you're receiving a fair quote on the commercial property before taking out a lease to pay it off.

Commercial leases have many different forms that allow a business to rent a space. One such product, called a capital lease, allows the company leasing the space to purchase it either over time, or at the end of a contract with a balloon payment. This differs from a standard purchase mortgage in that one or both parties may walk away at the end of the initial term.

It's important to stay up-to-date on the commercial leasing: capital lease news and trends if you own or operate a business. You need to know the latest laws and regulations being passed in your city, state and town as well as the supply, demand and overall health of the commercial real estate industry. This knowledge will allow you to obtain a capital lease at a fair price for your business.

1. Locate business websites that cover the business of commercial leases and the companies who invest in them for profit.

2. Find online magazines that cover commercial leases and capital leasing news and trends.

3. Check out associations which specialize in covering, supporting and promoting commercial leases and the commercial real estate market at large.

Action Steps
The best contacts and resources to help you get it done

Find websites dedicated to business news including the coverage of capital leases

Commercial property lease reporting is done by every publicly traded company which invests in commercial real estate. This reporting is done on a quarterly and yearly basis. Also, publicly traded companies which invest in commercial leasing using capital lease agreements are covered by analysts and other industry pundits who will release periodic articles.

I recommend: Visit the website for Fox Business. By simply searching "capital lease" you will get an array of quarterly reports for companies that invest in commercial real estate through utilizing capital leases as well as news articles on the subject. CNBC is also another quality financial resource which covers the news of commercial capital leasing.

Check out online magazines which cover the business of capital leasing

There are many real estate magazines which cover the day-to-day movement of the commercial real estate business. Visit the websites of these reputable magazines to find the latest information on the advantages of commercial leases, the latest knowledge on how to structure a capital lease agreement and more.

I recommend: Visit the website for National Real Estate Investor online. Simply searching "capital lease" returns a bevy of article results. Also visit the website for the Real Estate Journal. They have a search section as well which returns many up-to-date articles on capital leasing.

Find associations that specialize in commercial leases

There are several national and many state and regional associations dedicated to commercial real estate and commercial leases. Because a capital lease is a popular financial instrument used by the commercial real estate industry, many of these associations cover the news and trends associated with the latest information regarding such leases. Visit the websites for these associations.

I recommend: Visit the website for the Indiana Bankers Association. They have several articles, which are updated often on commercial leasing, including news about capital leasing. Also Motley Fool covers the news being released by commercial real estate associations along with commercial real estate companies.

As a business owner, you don’t always have the capital up front to purchase the equipment you need. That’s where commercial leasing can come into play. Securing a capital lease allows you to secure that equipment to further your business right away. All the while you’re making payments and at the end you have the option to own the equipment outright. Learning these key terms can help you converse with your lender or lawyer about the lease terms and other options you want included in the lease agreement.

Action Steps
The best contacts and resources to help you get it done

Capital lease

A capital lease is a financing option in which the leasee has the option to purchase the property at the end of the term. There are other criteria that makes a lease a capital one, including: the lease term accounts for more than 75% of the property's estimated lifespan, the leasee can purchase the property for less than fair market value, ownership is transferred to the leasee at the end of the lease term or if the value of lease payments go beyond 90% of fair market value.

I recommend: TruckInfo offers an example of a business owner wanting to purchase a new truck. The article compares financial options through a traditional loan or via a capital lease.

Fair market value

What an interested buyer is willing to pay and what an interested seller is willing to accept for payment in an open market is fair market value.

I recommend: This Investopedia entry explains more about fair market value and gives some specific examples.

Capital lease agreement

A capital lease agreement is the legal document that spells out the terms and conditions of your capital lease including the payment schedule, what happens if you default and who's responsible for any damage to the property, among other items.

I recommend: Check out this example of a commercial lease agreement from AllLaw.com.

Bargain purchase

Written into some leases, a bargain purchase option allows the leasee to purchase the equipment at a price below fair market value. This is often included in the lease to ensure that the leasee will purchase it on that option date.

I recommend: Check out this chapter on leases from one of North Seattle Community College's accounting classes.

Balloon payment

Capital lease agreements often allow for a balloon payment at the end of the lease term or it is included in the lease payment schedule. A balloon payment refers to a large payment at the end of a series of smaller, scheduled payments.

I recommend: Check out the lease financing option information which discusses using balloon payments in this Modern Machine Shop article on financing a new tool.

Operating lease

The other type of commercial lease is an operating lease. Used on a short-term basis, an operating lease allows the leasee to acquire the property for only a short time, usually a fraction of its useful life.

I recommend: This Capital Resources article explains the difference between a capital lease and an operating lease.