Quick answer: Also known as a capital lease or finance lease , this option is structured so that you own the equipment at the end —typically for a token payment of $1.
You’re about to lease a truck, machine, or medical device—and the lender gives you two options:
- A $1 buyout lease, or
- A Fair Market Value (FMV) lease
So which one should you choose?
The difference can impact everything from your monthly payments to tax deductions, asset ownership, and even how your business grows over time.
In this guide, we’ll explain:
- What each lease type really means
- Pros and cons of $1 buyout vs. FMV
- Real-world examples
- How to choose based on your business strategy
What Is a $1 Buyout Lease?
✅ Key Features:
- Higher monthly payments
- You own the asset after the term ends
- Appears on your balance sheet as a liability
- Often used when you want to keep equipment long-term
Think of this as a loan in lease form. You're essentially buying the equipment over time.
What Is a Fair Market Value (FMV) Lease?
Also called a true lease or operating lease, this gives you options at lease-end:
- Buy the equipment at its market value
- Return the equipment
- Renew the lease
✅ Key Features:
- Lower monthly payments
- You don’t own the equipment automatically
- Payments are often 100% tax-deductible as an expense
- Best if you plan to upgrade or rotate assets frequently
This lease behaves more like a rental with an option to buy.
Side-by-Side Comparison Table
| Feature | $1 Buyout Lease | FMV Lease |
|---|---|---|
| Ownership at End | Yes – for $1 | Optional – pay fair market value or return |
| Monthly Payments | Higher | Lower |
| Tax Treatment | Interest and depreciation (CCA) deductible | Payments often 100% deductible |
| Best For | Long-term ownership | Frequent upgrades or uncertain use |
| Balance Sheet | Asset & liability recorded | May be off-balance-sheet (consult accountant) |
BDC’s equipment-financing guide emphasizes the complete financing structure when comparing offers.
“Don’t focus only on interest rates”
For the equipment decision discussed here, compare the amount financed, payment schedule, collateral and remaining obligations alongside the quoted rate.
Real Case Example: Commercial Kitchen Equipment
Scenario A: A restaurant leases a $40,000 combi oven under a $1 buyout
- Term: 60 months
- Monthly Payment: $835
- Owns equipment at end of lease
- Claims interest + CCA depreciation
- Keeps oven for 10+ years
Scenario B: A catering business leases the same oven under an FMV lease
- Term: 60 months
- Monthly Payment: $725
- Returns oven at end and leases newer model
- Claims full lease payments as business expense
- Avoids servicing aging equipment
Lesson: Both made smart choices—aligned to their long-term plans.
When to Choose a $1 Buyout Lease
✅ You plan to use the equipment for 5+ years
✅ You want to own the asset long-term
✅ Resale value matters to your business
✅ The equipment is core to operations (e.g., medical, CNC, trucking)
✅ You’re okay with slightly higher payments now for ownership later
Explore: Financing & Leasing Services
When to Choose an FMV Lease
✅ You want lower monthly payments
✅ You plan to upgrade regularly (e.g., laptops, imaging gear, vehicles)
✅ You want to keep the asset off your balance sheet
✅ You want 100% of payments to be a tax-deductible operating expense
✅ You value flexibility over long-term ownership
Tips for Deciding
✅ Ask yourself: Do I want to own this equipment in 5 years?
✅ Consider the resale and obsolescence risk
✅ Talk to your accountant about tax treatment
✅ Factor in buyout costs on FMV leases—don’t assume you’ll get a deal
✅ Ask your lender if the FMV option includes a guaranteed residual value
Authoritative references
- Innovation, Science and Economic Development Canada — Canada Small Business Financing Program:
The Canada Small Business Financing Program makes it easier for small businesses to get loans from financial institutions by sharing the risk with lenders.
- U.S. Small Business Administration — 7(a) loans:
The 7(a) loan program is SBA’s primary business loan program for providing financial assistance to small businesses.
Program eligibility, lender criteria, tax treatment, and product terms can change. Verify current official guidance and the final financing documents before making a decision.
FAQs: Choosing the Right Lease Option
What happens if I end an FMV lease early?
You may owe early termination fees. Some leases allow early buyouts—ask upfront.
Can I switch from FMV to $1 buyout during the lease?
Not usually, unless it was pre-structured as an option. Choose carefully upfront.
Are $1 buyout leases only for large companies?
No. Many small and mid-sized businesses use them—especially in trucking, healthcare, and trades.
Can Mehmi help structure both types?
Yes. We offer both $1 buyout and FMV leasing options—and help you match the right one to your needs.
Final Word: Lease with Strategy, Not Guesswork
Choosing the right lease structure isn’t just about monthly payments—it’s about your business model, asset usage, and financial goals.
Whether you want to own the asset outright or keep upgrading, understanding the difference between $1 buyout and FMV puts you in control.
At Mehmi, we walk through these options clearly—so you don’t sign a lease that doesn’t fit your vision.
Need help choosing between lease types?
Talk to a credit analyst or use our calculator to compare monthly payments and buyout scenarios.