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$1 Out or FMV?

How to pick the best lease type for your IT strategy and budget

If you are shopping for new office technology hardware like copiers, scanners, computers, or A/V equipment, you are likely thinking about financing options that allow you to spread out the cost into monthly payments. Equipment leases come in two main options: Fair Market Value (FMV) and Dollar Buyout ($1 Out). Each lease type has benefits. To pick the one that is right for your organization, Aztec can help you evaluate them against your financial objectives and IT strategy.

Dollar Buyout | You Own the Equipment

A Dollar Buyout lease is effectively a payment plan, where you own the equipment outright at the conclusion of the lease. As a result, the equipment will appear on your balance sheet as an asset. $1 Out leases typically make the most fiscal sense for equipment that will retain its value and usefulness for many years after the initial lease term. Since you will own the equipment in full when the lease is over, you want to make sure it still has value and is worth owning.

For office technology hardware, the decision comes down to the useful life you expect from the device. If you do not expect your needs to change and you use the equipment lightly, you might be able to use the same device for longer than a typical 3-5 year lease term. Even though $1 Out leases have higher monthly payments, these types of leases can offer low long-term total cost of ownership if you stretch out the useful life.

On the other hand, technological improvements come along frequently, and it can sometimes be impractical to extend the life of IT hardware beyond the typical 3-5 years. Consider a typical laptop computer, where processor speed and other specifications advance quickly; you could hurt user productivity if you are locked into one piece of hardware too long.

Fair Market Value | The Bank Owns the Equipment

An FMV lease functions like a traditional rental: you can use the equipment for the duration of the lease but need to return it when the lease is over. Unlike $1 Out, the bank owns the equipment during and after the lease in FMV.

Once the lease is over, you have a few options. You can return the equipment to the bank and procure new equipment. This gives you complete flexibility to update technology and rightsize it for your organization every lease cycle. Alternatively, you could explore options to re-lease the same equipment, typically for a shorter period of time.

The flexibility of an FMV can benefit your IT strategy and budget. Technology can improve rapidly, and maintaining a standard 3-5 year upgrade cycle ensures your team has access to the best productivity tools. FMV also typically yields lower monthly payments than $1 Out, which can reduce the burden on your cash flow.

How Aztec Helps

When Aztec works with clients to modernize their office technology, we know that the best IT strategy works for your budget realities. We partner with specialist financial services institutions to offer you attractive leasing options, and we can help you pick the right path forward for your business. If you are looking for new office technology equipment, contact us to learn more about our products and how our financing solutions can help.

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