What’s the difference between municipal and commercial leases?

There are a lot of important differences between municipal and commercial leasesFrequently Asked Questions FAQs About Municipal Leasing FAQ'sFor example, the equipment is being sold directly to the government entity (not to the financial institution). Your government “owns” the equipment the day it is delivered, and it remains in your government’s name after the last lease payment has been made.  Equipment is never turned back. Our municipal leases are based on super-low tax-exempt municipal interest rates, which are almost always the lowest-cost type of borrowing available to government entities like yours.

With a commercial vehicle or equipment lease, the equipment is sold to the financial institution (which cannot take advantage of the government contract Are you comparing apples and orangespricing that your agency is eligible for). A commercial lease is based on significantly higher commercial interest rates. Most commercial leases are effectively structured as rental agreements with residual buyouts, mileage restrictions, and nominal or fair-market-value purchase options on the back end.


Any “purchase option” in the lease is a clear indication that your agency is not the owner and that you are likely not benefiting from the very low-interest rates that you are eligible for.

Another critical difference is that Commercial leases are “firm term” obligations that do not include the non-appropriation of funds language that is required in almost all jurisdictions. And they create balance sheet debt.

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* Note: First Capital will only retain a security interest during the term of the lease (N/A in Florida and Tennessee)