What Is an Operating Lease? Key Features & Benefits Explained

Acquiring lab equipment is one of the biggest financial challenges for life science companies, especially startups and labs operating on tight budgets. Even labs with steady cash flow can struggle to afford high-quality instruments upfront or secure loans for major equipment investments.

The growing popularity of equipment leasing reflects how businesses are tackling these challenges. In 2023, the U.S. equipment leasing and finance industry hit a record $1.34 trillion, with demand for life sciences lab space climbing by over 6% in early 2024. As research hubs like Boston, San Diego, and San Francisco drive innovation, leasing has become an essential tool for labs to remain competitive in a fast-evolving industry.

In this guide, we’ll talk about a specific type of lease: the operating lease. We’ll break down what they are, how they work, and why they’re a smart choice for labs. Whether you’re seeking financial flexibility or looking to optimize your lab’s equipment strategy, this guide will, hopefully, help you decide if an operating lease is the right fit for your needs.

What Is an Operating Lease?

An operating lease is a type of lease agreement that allows the lessee to use an asset for a specified period of time without transferring ownership. The lessor retains ownership of the leased asset, and the lessee makes regular lease payments to use it during the lease term. This arrangement is particularly common for assets such as laboratory equipment, real estate, and office machinery, where flexibility and cost management are key priorities.

Operating leases are often referred to as "off-balance-sheet leases" because, historically, they were not recorded as liabilities under ASC 840, the previous accounting standard. However, with the introduction of ASC 842 by the Financial Accounting Standards Board (FASB), lessees are now required to account for operating leases on their balance sheets. This includes recognizing a right-of-use (ROU) asset and a lease liability, which reflect the present value of the lease payments.

In short, an operating lease gives labs and other businesses access to essential tools without the long-term commitment of ownership. At the end of the lease term, the lessee can return the asset, renew the lease, or, in some cases, purchase it at its fair market value. There are different types of leases, but operating leases are unique in that they do not transfer ownership during the lease term.

Key Features of Operating Leases

Operating leases are all about flexibility. They let your lab use essential equipment—like incubators, centrifuges, or HPLC systems—for a set period of time without the financial or logistical stress of ownership. Here’s a closer look at what makes operating leases such a smart option:

1. No ownership transfer: With an operating lease, the lessor keeps ownership of the asset. You, as the lessee, get full use of the equipment during the lease term without committing to owning it long-term. It’s like borrowing exactly what you need without worrying about what to do with it later.
2. Short-term commitment: Operating leases typically last only part of the asset’s useful life. For example, you might lease a freezer for three years instead of its full 10-year lifespan. This means you can adjust as your lab’s needs evolve without being tied to outdated equipment.
3. End-of-lease flexibility: When the lease ends, you’ve got options. You can return the equipment if it no longer fits your needs, renew the lease if you want to keep using it, or purchase the asset if owning it makes sense—usually at fair market value.
4. Tax-deductible payments: Lease payments are considered operating expenses, so they’re typically tax-deductible. This reduces your lab’s taxable income, freeing up more budget for research or expansion.
5. Accounting transparency: Thanks to ASC 842, operating leases are recorded on your balance sheet as a right-of-use (ROU) asset and a lease liability. This ensures your financial statements provide a clear picture of your lab’s assets and liabilities.

Operating leases give your lab the tools it needs without the hassle of ownership. Whether you’re running short-term projects or scaling up operations, they help you stay flexible, efficient, and financially stable. And the best part? You can always adjust as your lab evolves.

How Operating Leases Work Under ASC 842

If your lab has ever used an operating lease, you know it’s a straightforward way to access equipment without ownership. But with ASC 842, the rules around accounting for leases have changed. Now, all leases—including operating leases—need to be reflected on your company’s balance sheet. Here’s how it works:

The Basics Under ASC 842

When you sign an operating lease, your lab records a few key things:

1. Right-of-use asset: This represents your right to use the equipment for the lease term.
2. Lease liability: This is the present value of the lease payments you owe during the lease term.
3. Lease Expense: Unlike finance leases, operating leases record a single lease expense on the income statement, representing the straight-line basis of the total lease cost across the term. This avoids the complexity of separating interest and depreciation expenses.

For example, if you lease a centrifuge for $1,000 a month over three years, the ROU asset and lease liability recorded on your balance sheet will reflect the discounted present value of those payments.

How This Affects Financial Reporting

Before ASC 842, operating leases didn’t appear on the balance sheet, making them "off-balance-sheet" items. But under the new rules, everything is accounted for. Here’s why that matters:

• Transparency: Investors and stakeholders get a clearer view of your lab’s financial position, including the impact of leases.
• Consistency: With both ROU assets and lease liabilities recorded, it’s easier to compare your lab’s financial health to other organizations.
• Compliance: Staying aligned with ASC 842 ensures your lab meets US GAAP standards, avoiding any accounting issues down the line.

ASC 842 might add a layer of reporting, but it also helps labs manage leases more strategically while staying aligned with new accounting standards. By providing better visibility into lease commitments, it enables smarter decision-making about equipment investments, lease terms, and cash flow management. By understanding how ROU assets, lease liabilities, and residual value come into play, your lab can make more informed decisions about leasing and its financial impact.

Residual Value & the Life of the Asset

An important aspect of operating leases is the concept of residual value, which is the expected value of the asset at the end of its lease term. Operating leases are structured so that the lessor retains ownership of the asset and its residual value, ensuring it can be leased or sold again.

For lessees, this means you only pay for the use of the asset during its economic life, not its full cost. For instance:

• A centrifuge with a 10-year lifespan might be leased for just three years, allowing your lab to access the equipment without worrying about what happens once it reaches the end of its useful life.
• The lessor, in this case, takes on the risk and responsibility of the residual value, making operating leases a low-risk option for labs.

The Financial & Operational Benefits of Operating Leases

Operating leases aren’t just about accessing equipment—they’re about making smart financial and operational decisions for your lab. From preserving cash flow to staying current with technology, here’s how operating leases deliver value:

1. Preserve cash flow: Instead of a hefty upfront payment, operating leases spread costs over time with manageable monthly payments. This frees up your lab’s budget for other critical needs, like hiring staff, funding research, or stocking up on consumables.
2. Avoid obsolescence: In fast-moving industries like life sciences, equipment can become outdated quickly. With an operating lease, you can return older equipment at the end of the lease term and upgrade to newer, more advanced models without worrying about depreciation.
3. Gain tax advantages: Lease payments are typically considered operating expenses, which means they’re tax-deductible. This can help lower your lab’s taxable income and improve its financial performance over the lease term.
4. Reduce maintenance hassles: Many operating leases include service contracts that cover maintenance and repairs. This reduces unexpected downtime and ensures your equipment stays in top condition, letting you focus on what matters most: your research.
5. Stay flexible: Operating leases offer flexibility that ownership can’t. Need to scale up quickly? You can lease additional equipment. Project ended? Return the equipment at the end of the lease. It’s a solution that adapts to your lab’s changing needs.

Think of it this way: operating leases give you the tools to succeed without locking you into long-term ownership. You stay financially nimble, avoid the risks of obsolescence, and keep your lab running efficiently. For labs with dynamic needs, it’s a win-win.

Operating Lease vs. Finance Lease: Key Differences

Both operating leases and finance leases (previously called capital leases) give you access to equipment without requiring an upfront purchase. But they’re designed for different needs. Here’s a breakdown of how they compare:

If your lab values flexibility, lower upfront costs, and the ability to upgrade equipment as needed, an operating lease is likely the best fit. But if your goal is to own equipment outright—particularly for assets with a long useful life like freezers or water baths—a finance lease may make more sense.

The choice comes down to your lab’s needs. Is this equipment something you need temporarily to complete a project, or is it a long-term investment? Operating leases are ideal for staying agile and avoiding the risks of ownership, while finance leases are for when you’re ready to commit. Learn more about operating leases vs. finance leases.

Why Operating Leases Work for Your Lab

Operating leases offer labs the flexibility and cost-efficiency needed to stay competitive in a fast-changing industry. Whether you’re working with tight budgets, running short-term projects, or avoiding the risks of equipment obsolescence, leasing gives you access to the tools you need without the financial strain of ownership.

By spreading costs over time, keeping equipment up-to-date, and minimizing maintenance responsibilities, operating leases are a smart choice for labs that want to focus on what matters most: research and innovation.

At Excedr, we specialize in operating leases tailored to your lab’s unique needs. With options for a wide range of equipment—from centrifuges and spectrometers to incubators and HPLC systems—we make it easy to equip your lab without overextending your budget.

Here’s what you get when you lease with Excedr:

• Flexible terms that adapt to your research needs.
• Full maintenance coverage to reduce downtime.
• Tax-deductible lease payments to improve your bottom line.

Ready to lease the tools your lab needs? Contact us today to learn more about our leasing program and find the perfect solution for your lab.