Operating Vs. Equipment Lease

Operating leases and equipment leases refer to two different things. The former refers to the terms of use while the latter refers to what is being leased. This means that some leases are operating leases, some leases are equipment leases and some are both

Operating Lease

An operating lease is a lease that is short-term in relation to the asset's life expectancy. This means that having an operating lease does not give you the same rights as ownership; you may not record depreciation on your balance sheet, as you are basically just renting the asset.

A video rental is a good example of an operating lease.

Equipment Lease

An equipment lease is any lease for equipment like cars, trucks, computers or power tools. Equipment leases can be operating leases, if they are short term, but they can also be capital leases (which denote effective ownership), gross leases (in which the actual owner covers maintenance and other fees) or a myriad of other kinds of leases.

Credit

A major advantage of an operating lease is that it appears on your balance sheet as an expense, rather than as a debt. This means it can make you more credit-worthy and easier to attract investors. Equipment leases, on the other hand, show up on your balance sheet as debt.

References

• Investopedia: Operating Lease
• Investopedia: Uncovering Hidden Debt
• Capital Funds Leasing: Leasing Ideas