A $1 buyout lease lets a business buy the equipment for a nominal amount at the end, so its payments cover nearly the full cost and it works much like a purchase. A fair market value lease ends with a choice to buy at market value, return or renew, usually with lower payments. Rockstone Lending, a small-business funding broker in Yuma, Arizona, helps owners compare leases and loans: (928) 436-5545.
| $1 buyout lease | Payments cover nearly the full cost; buy the equipment for a nominal amount at the end |
|---|---|
| FMV lease | Lower payments are common; buy at fair market value, return or renew at the end |
| Cost known at signing? | $1 buyout: largely yes. FMV: not fully, because the end price is set later |
| Tax treatment | Ask your accountant; Rockstone Lending gives no tax advice |
| Who decides | The lessor or lender sets the terms; you choose the structure |
How a $1 buyout lease works
The lessor owns the equipment during the lease, but the payments are set to cover nearly all of its cost plus the lessor's financing charge. At the end you can buy it for a nominal amount, conventionally one dollar. Because ownership is all but certain, a $1 buyout lease behaves much like an equipment loan: you are paying for the whole machine over the term.
It tends to suit equipment you plan to keep for its full working life, such as a skid steer, a commercial range or a dental chair. How it is treated for tax and accounting purposes is a question for your accountant.
How a fair market value lease works
In an FMV lease, the lessor expects the equipment to keep part of its value at the end of the term and sets the payments to cover only the rest, plus its charge. Payments are therefore often lower than on a $1 buyout lease for the same equipment. At the end you usually choose to:
- Buy the equipment at its fair market value at that time
- Return it, under the lease's return conditions
- Renew or extend the lease
- Upgrade to newer equipment, if the lessor offers it
The catch is that the end price is not known when you sign. The agreement should say how fair market value will be determined, whether by the lessor, by an appraisal or by another method. Get that definition in writing, and ask whether the lessor will give a non-binding estimate.
FMV leases tend to suit equipment that goes out of date quickly or that you expect to replace, such as imaging systems, computers and point-of-sale hardware.
Other end-of-term structures
- Fixed purchase option: the agreement states the purchase price in advance, so the end cost is known, while payments sit between a $1 buyout and an FMV lease.
- Equipment finance agreement or equipment loan: your business owns the equipment from the start and the lender holds a security interest until it is paid. There is no buyout because there is nothing to buy back.
Our equipment financing page compares leases and loans in general, including titles and UCC filings.
Side-by-side comparison
| Question | $1 buyout lease | FMV lease | Equipment loan |
|---|---|---|---|
| Who owns it during the term? | The lessor | The lessor | Your business, with a lien |
| Payments, relatively | Higher | Often lower | Depends on down payment and term |
| At the end | Buy for a nominal amount | Buy at market value, return or renew | Lien released; you keep it |
| Total cost known at signing? | Largely | Not fully | Yes, for a fixed-rate loan |
| Often a fit for | Equipment kept for its full life | Equipment replaced or upgraded often | Equipment kept for its full life |
Comparing the total cost
To compare structures fairly, add up everything you will pay for each:
- Every lease payment over the term, plus any payment due at signing
- The buyout or purchase price, or for an FMV lease, your realistic estimate of it
- Fees, required insurance and any maintenance you must contract for
- For a loan: the down payment plus total repayment
The equipment financing calculator models a loan, not a lease. A $1 buyout lease's total is close enough to a loan's that you can set the two side by side; an FMV lease's total depends on the end price, so compare it on the assumption that you will either buy or return the equipment.
End-of-term clauses to check
- Notice requirements: some leases require you to tell the lessor of your choice within a set window before the term ends.
- Automatic renewal: some leases renew on their own, month to month or for a longer period, if you miss that window.
- Return conditions: wear standards, cleaning, and who pays to ship or haul the equipment back.
- Early termination: whether you can end the lease early, and what it costs.
- Insurance and maintenance: who carries each during the term.
Put the end date and any notice deadline on the calendar the day you sign.
Which fits Yuma equipment
The choice follows how long you will keep the equipment. Yuma County's 384 construction employer establishments (U.S. Census Bureau, County Business Patterns 2023) mostly finance machines and trucks they run for years, which points toward a $1 buyout lease or a loan; see contractor financing. A medical or dental practice may own chairs outright while leasing imaging and practice technology on FMV terms to keep up with upgrades; see medical and dental practice financing. Restaurants often keep refrigeration and cooking lines for years but replace point-of-sale hardware sooner.
How Rockstone Lending helps
Rockstone Lending connects you with lending partners; partners make credit decisions and set rates and terms. Bring the vendor's quote and tell us how long you expect to use the equipment, and we'll talk through whether a loan or which kind of lease is worth exploring with partners that finance it. We don't give tax advice. See how the process works or start an application.
By Rockstone Lending · Updated
