Your company needs to buy equipment, but cash flow is tight. While taking out a bank loan is an option, the idea of tying up your business' credit line does not appeal to you. And so, it is no doubt with some relief that you hear about leasing as an option.

If leasing your computer equipment, phone system, or forklift is what you've determined to do, you're definitely not alone in your decision. According to the Equipment Leasing Association, as many as 8 out of 10 U.S. businesses choose to lease at least some of their equipment.

Very simply, a lease allows you to use equipment without having to pay for it upfront. The leasing company make the purchase on your behalf and then turns to you for regular payments that are applied toward that purchase, plus interest.

There are two basic types of leases: finance and true. The one that you pick will depend on the type of equipment that you are leasing and what you expect to do with the equipment once the lease has expired.

Finance leases (a.k.a. capital lease or conditional sale) work best for companies that intend to keep the equipment at the end of the lease. The main advantage to this type of lease is that it gives you the option to purchase the equipment for a nominal fee, usually $1.00. Payments on finance leases generally represent the full value of the equipment.

True lease payments (a.k.a. tax lease), on the other hand, do not cover the full value of the equipment. At the end of the lease, you can choose to walk away from the equipment or purchase it at fair market value. For office equipment, fair market value usually translates to at least 10% of the original purchase price.

There are two primary advantages of true leases. First, you may be able to fully claim lease payments for tax purposes. In contrast, finance leases are usually regarded by the government as an installment plan purchase in lease clothing.As a result, although finance leases let you spread your payments over time, they are not tax advantaged in the way true leases are. (Before you sign any lease, make sure to discuss the tax implications with your accountant as exceptions are abundant.)

In addition, true lease payments are generally lower than for finance leases. This is because lessors can resell the equipment after a true lease expires in the event that you decide not to purchase it.

So, what are the upfront costs for signing a lease? In general, expect to put down the first and last month of the lease payments at the time of signing. If you are a start-up or high risk company, you may also have to put provide a down payment or some additional collateral as well.