Commercial leases come in two main categories — capital or operating leases. Operating leases are usually used to acquire an asset for the short-term and not considered capital or a liability for a company on its financial records. Leasing a piece of equipment using an operating lease makes a good option for a company looking to an asset for temporary use. An operating lease is also good for start-up businesses that don't have enough capital to purchase or enter into a lease-to-buy equipment.

When learning about the operating lease as it compares to other commercial lease template options, start by learning the basic definition and key terms associated with the operating lease. Once you understand the basics, get helpful information from financial advisers and lease experts. To learn more about operating lease agreement basics:

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

2. Learn about the operating lease template from experts who have the latest information on trends and standards.

3. Compare operating and operating lease options.

Action Steps
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Learn commercial leasing: operating lease for beginners key terms

Find the definition of a operating lease and information including lease definitions through financial educational website. Research operating lease information for equipment you need to upgrade frequently. Review the lease terms, purchase agreement, loan options and payment definitions.

I recommend: Get the definition of an operating lease from InvestorWords.com. You can also refer to the Business Dictionary for an explanation of the operating lease.

Get the latest operating lease information and trends from experts

Read financial publications, and get advice from financial industry experts about commercial operating leasing options, their benefits and downfalls. Find out how a template for a commercial lease agreement is best suited to your operating lease agreement, or research the latest trends in operating leases as they compare to your industry.

I recommend: Get equipment operating leases information from the Equipment Leasing Depot. The website is a portal to equipment leasing options for all types of industries, or use the equipment leasing guide at Biz Quoter for additional information.

Compare capital and commercial operating leases and capital

Make sure you understand the deciding factors that distinguish between a operating 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 Operating Resources LLC to learn the differences between the two lease types, or review the in-depth "Capital and Operating Leases Research Report" put out by the Federal Accounting Standards Advisory Board.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Be careful when reporting your lease on your balance sheets. Many companies are being called out for trying to save money by recording as an operating lease what is actually a capital lease when filing financial and tax documents.

In order to save money, many small businesses decide to take out a commercial operating lease instead of buying assets. When you look at the different commercial leasing, operating lease will likely offer you the lowest priced option.

For operating leases, the owner of the equipment or property will allow the lessee to use the item until the end of the lease. Once the operating lease ends, the lessee must return the property back to the owner. The client may have to maintain responsibility for any lease operating expenses as well.

1. Compare the costs of buying versus leasing the property. In order to help you do this, you can use an operating lease template to make number comparisons and estimates.

2. Research commercial lease prices from different financial institutions. You’re going to want to find the lowest cost commercial operating lease possible. Most leases will reflect fair market value prices.

3. Apply for commercial operating leases. After you have decided to go forward with the operating lease, you’ll have to apply for approval through a commercial banking organization.

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Compare commercial lease prices

If you decide you may want to take out a commercial operating lease, then you're going to start researching rates. You can contact multiple financial institutions in order to receive quotes on an operating lease.

I recommend: To receive quotes on operating leases, including commercial vehicles, then submit a request on LeaseCompare.com. You can also receive free quotes from AllOptions on commercial equipment operating leases.

Set up a commercial lease template

In order to analyze the financial data of owning versus leasing, you're going to want to use a commercial leasing template. Within a commercial leasing template, you're going to enter tax information, purchase information and leasing costs. You can then make easy cost comparisons for the two options.

I recommend: When you go on Microsoft Office Online, you can find multiple commercial lease templates you can use to organize your data. Download the template and plug in your specific data. If you want a template for a commercial lease agreement, you can get a copy from LegalMessenger.com.

Send in an application for an operating lease

After you have found a fair market priced lease, you can go forward with the application process. The institution will need information, like property value, income and length of desired lease prior to processing.

I recommend: You can complete the operating lease application from LeaseProcess online or send it by fax for quick processing. You’ll need to include financial records with your application. Another option you have is to apply for a commercial lease through eLease International.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  You will not take out a long term commercial operating lease. If the length of the lease exceeds 75% of the life of the property, then you must take out a capital lease instead. If the owner transfers rights to the property as well at the end of the lease, this is considered a capital lease as well.

Companies take out commercial operating leases when they need some type of an asset but do not want to purchase it for some reason. In the world of commercial leasing, operating leases, or equipment operating leases, are used to temporarily lease equipment. Startup companies also use operating leases to cut down on initial capital outlay.

Though the reason for using a commercial or equipment operating lease can vary, identify what you need, who can provide it and which leasing company offers the best terms. When working with commercial leasing, getting an operating lease requires several steps.

1. Decide if an operating lease is the right choice and what type of payment plan works for your company.

2. Prepare the documentation required for the application package ahead of time for a leasing company to consider.

3. Apply for the operating lease of your choice with the company of your choice.

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Decide if the lease operating expenses are what your business needs

Commercial equipment operating leases are usually a cheaper alternative to purchasing equipment outright, but there are other factors to consider when looking over your business's finances. Use an operating lease template or a commercial lease template to compare purchasing to leasing. Also, consider which payment schedule or plan that might work best for your company.

I recommend: Microsoft offers a comparison template you can use when deciding if an operating lease is your best option. You can find descriptions and details of payment plan options Capital Funds Leasing.

Prepare for the operating leases application process

To make the application process faster, prepare the required paperwork ahead of time and use a checklist to make sure you have everything you need before you begin. In general, you can expect to provide both company and personal financial statements, previous tax returns, proof of identity and company verification, and an invoice or cost proposal for the asset your company wants to lease.

I recommend: Lease International has a documentation checklist you can use. Lease Process has a sample personal financial statement that may be helpful.

Submit an application for a commercial operating lease

If you do not already have a leasing company you work with or one to apply through, begin by submitting general information and getting quotes quickly from interested leasing companies. After the quotes come in, take your already prepared documentation to submit applications quickly and easily.

I recommend: You can apply for operating lease quotes through Biz Quoter. BuyerZone also has information on equipment lenders. Either website will then send you further information and quotes to consider from several different leasing companies. To find out more about the principles of fair leasing, check out the Equipment Leasing and Finance Association.

Commercial operating leases offer businesses the ability to lease equipment for short term needs. They provide flexible options to businesses including minimal initial investments, tax advantages and the ability to protect business cash flow. For businesses that are considering applying for commercial operating leases, it's essential to learn the key terms used to take the stress and confusion out of the negotiating process. Take the time to learn key terms for commercial leasing: operating lease to negotiate a lease agreement that meets the needs of your business.

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Customized lease banking programs

Customized lease banking programs are leases tailored to the specific needs of businesses. Customized lease banking programs offer many options including lines of credit, equity sharing, equity lines of credit and debt discounting. The types of customized lease banking programs offered depend on the type of businesses applying for leases.

I recommend: Read the article at Smart Business that explains customized lease banking programs.

End of lease options

End of lease options are options available when a lease matures. One of these options is the ability to extend the lease. Negotiate an end of lease option to avoid paying high residual fees if you need to extend a lease.

I recommend: Review the graph that includes a description of end of lease options at Capital Fund Leasing.

Risk of obsolescence

Risk of obsolescence is the risk that a product, technology or process is no longer needed or obsolete. Obsolescence also refers to risk of certain costs for an obsolete lease agreement or service. Many leasing companies offer businesses lease programs that minimize the risk of obsolescence to guarantee that lease agreements won't become obsolete. Operating leases transfer risk of obsolescence to leasing companies.

I recommend: Read the operating lease information at HP Financial Services that mentions risk of obsolescence.

Residual risk

Residual risk refers to the risks that residual value of an item will be worth more than its initial lease agreement stipulation or market value. One way to reduce residual risk is by agreeing to a lower residual value when a lease becomes mature.

I recommend: Find how operating leases eliminate residual risk at Resonance Group.

Sale-leaseback financing

Sale-leaseback financing is when a business owner sells real estate to an investor at fair market value. The investor gives the seller an operating lease for a certain number of years and then pays an annual rent that is a percentage of the contracted sale price. Sale-leaseback financing are based on credit rates so rent amounts can increase or decrease depending on the current credit rates.

I recommend: Learn about sale-leaseback financing at Telogy.

Conservation of working capital

Conservation of working capital is the ability to conserve a company's working capital or liquid assets. One way for businesses to conserve their working capital is by leasing equipment instead of buying it. This reduces the cost of the equipment while protecting company funds.

I recommend: Gather information about conservation of working capital at Tooling and Production.