If you choose a residual-based or fair-market value lease, lease financing transfers some of the risk of obsolescence to the leasing company.
This happens in two ways.
First, you pick a term duration that offers you comfort. If you think the equipment will be obsolete in two years you pick a 24 month term lease.
Second, at the end of an equipment lease you are able to choose to:
1) return the equipment
2) renew the lease, or
3) purchase the equipment.
With commercial equipment leasing and financing you have the flexibility to make your choice at the end of the lease term. When you purchase equipment via a bank loan or cash, you own the equipment at the end of the term. This gives you no flexibility. If you choose to return the equipment, the leasing company then assumes the ownership, leaving you free to obtain up-to-date equipment.
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