|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Why Lease?
|
|
|
|
|
|
|
 Better
Value
|
More
Convenient
|
Greater
Control
|
|
Leasing has become the preferred method of
acquiring equipment among businesses. Currently,
35% of all equipment is a Leased. Leasing offers
real advantages including better value, more
convenience and greater control.
|
|
|
|
|
|
|
» Better Value
|
|
Make better use of your money
-
Conventional bank loans usually require more
money upfront than leasing and often have
restrictive covenants.
-
Conventional debt financing may require a
10-20% down payment.
-
Leasing generally requires only one or two
payments upfront, which are applied to your
future payments.
Finance 100% of your costs
In most cases, the full amount of the equipment,
as well as the service, shipping, installation
costs and maintenance can be included in the
Lease. This spreads the cost out evenly over the
term of the Lease freeing up your money to work
harder for you.
Realize significant tax savings
Monthly payments on operating Leases are
typically viewed as operating expenses offering
significant tax benefits. You should always
consult with your financial advisor to determine
the most tax-beneficial a Lease for your
company.
|
|
|
|
|
|
|
» More Convenient
|
|
Speedy and easy
With a Lease, most applications receive bids
within two business days. This means that you
can acquire equipment now, so your business can
focus on increasing revenues.
You can tailor a solution that meets your
requirements
Leasing is flexible so that you can tailor the
length and amount of your payments to meet your
business' needs.
-
"step-up" Leases allow you to start with low
payments that increase over time so you can
concentrate on using the equipment to
generate revenue.
-
"skip" Leases restrict payments to given
months of the year so you can plan ahead to
cover the slow times.
-
"deferred payment" a Leases allow a
significant grace period before your first
payment is due.
-
"master" Leases offer a more convenient way
to add more equipment to your existing a
Lease.
|
|
|
|
|
|
|
» Greater Control
|
|
Avoid the risk of your equipment becoming
obsolete
With ownership you run the risk that new
technology will render your equipment obsolete
within a few years, leaving you with equipment
that no longer meets your needs and that is
difficult to sell. Leasing allows you to replace
or upgrade equipment to keep your business
competitive.
Improve your cash flow forecasting
The fixed nature of a a Lease obligation
eliminates uncertainty about the future cost of
the equipment. Your Lease payments facilitate
more accurate forecasting and planning.
No ownership dilution
Leasing allows you to increase the cash flow of
your company without bringing in investors to
finance capital expenditures.
|
|
|
|
|
|
|
Understanding Leasing
|
|
|
|
|
|
|
|
|
» Types of Leases
|
|
|
While leasing companies may use the same name to
describe Lease, the terms and conditions written in
their contracts often vary. Be certain to review your
documents carefully and ask your leasing company or
Lease to explain anything that is unclear.
|
|
|
|
|
|
True Lease or Operating Lease
-
What it is good for:
Used with equipment that rapidly depreciates or
becomes obsolete in a short period of time.
-
How it works:
In a true or operating a Lease, the leasing company
retains ownership of the equipment during the Lease.
True or operating Leases typically have no
predetermined buyouts; customers usually classify
these payments as an operating expense.
-
Benefits:
Lower payments and typically the most tax-friendly
form of leasing, Additionally, true or operating a
Leases offer three choices at the end of your Lease:
-
return the equipment to the leasing company,
-
purchase the equipment at its fair market value
or option amount, or
-
extend your Lease term.
Finance Lease or Capital Lease
-
What it is good for:
If you plan on owning the equipment at the end of
the Lease.
-
How it works:
The full purchase price plus interest charges are
spread over the length of the Lease.
-
Benefits:
You will own the equipment at the end of the Lease
for a minimal amount, such as a fixed percentage of
the original cost or $1.00.
Skip Lease
-
What it is good for:
Organizations that need a flexible repayment
schedule such as seasonal businesses, agricultural
companies, recreational services firms, and school
systems.
-
How it works:
You specify months when no payments are made.
-
Benefits:
Flexibility to adjust to irregular cash flow.
Sale Leaseback
-
What it is good for:
Customers who decide that leasing is more beneficial
after having purchased their equipment. Sale-
Leaseback also allows companies to raise cash for
other investments or cash flow purposes.
-
How it works:
The business that has already purchased equipment
sells it to a leasing company, which, in turn takes
ownership of the equipment and then a Leases it back
to the business.
-
Benefits:
The sale- Leaseback allows you to put money back
into your business or into investments that
appreciate rather than depreciate.
60 or 90-Day Deferred Lease
-
What it is good for:
Businesses that need equipment for operation and
development that will not immediately generate
revenue.
-
How it works:
A 60 or 90-day deferred Lease can be structured as a finance
Lease or
a true
Lease.
There is usually no advance payment required, and
the first payment is not due until 60 or 90 days
after the Lease begins.
-
Benefits:
The equipment you need can be acquired with little
to no money up front and no payments for 2-3 months.
Master Lease
-
What it is good for:
Leasing additional equipment over a certain period
of time.
-
How it works:
Separate a Lease schedules are created to
accommodate the addition of equipment over that
period of time. The master Lease governs the basic
terms and conditions. Each schedule may include
different end of term options and different a Lease
lengths but all will come under one "Master Lease
-
Benefits:
Acquiring additional equipment is made more
convenient.
Municipal Lease
-
What it is good for:
Local and state government organizations looking to
acquire equipment.
-
How it works:
The tax structures and details of municipal Leases
vary considerably from standard business a Leases.
Seek the advice of your financial advisor to better
understand your municipal a Lease options.
-
Benefits:
Municipal Leases are designed specifically for local
and state government organizations.
Step Up Lease
-
What it is good for:
Businesses whose financed equipment will become more
profitable over time.
-
How it works:
Payments increase according to a regular schedule
over the life of the Lease.
-
Benefits:
Payments can be differed to match cash flow.
Leasing Industry Links
-
Equipment Leasing Association. The
Equipment Leasing Association (ELA) is a national
organization comprised of member companies within
the equipment leasing and finance industry.
-
United Association of Equipment Leasing .
The mission of the United Association of Equipment
Leasing (UAEL) is to further the welfare of its
members and to provide and promote a forum for
interaction and programs which enhance business
opportunity
-
National Association of Equipment Leasing Brokers .
The National Association of Equipment Leasing
Brokers (NAELB) is an organization formed to promote
the interests of equipment leasing brokers through
education, advocacy, improved communication with
funders and programs designed to upgrade the
professionalism and profitability of brokers,
funders and others engaged in the business of
equipment a Lease financing.
-
Equipment Leasing and Finance Foundation .
The Equipment Leasing and Finance Foundation, the
prime developer and disseminator of the body of
knowledge for the equipment a Lease financing
industry, since 1989. A non-profit, tax deductible
organization.
-
Equipment Leasing Association's (ELA) A Lease
Assistant .
An educational portal for information on equipment
financing and leasing.
-
Monitor Daily .
Every month the Monitor provides readers with
in-depth information supplied by trusted sources in
the leasing and financial centers of the United
States.
|
|
|
Top
|
|
|
|
|
» Buyout / Purchase Options
|
|
|
Buyout/Purchase options are determined prior to the
inception of the Lease. They outline the customer's
final financial obligations at the end of the Lease.
Leasing provides a number of options for purchasing your
equipment, including:
|
|
|
|
|
|
Fair Market Value (FMV) Purchase Option
At the end of term, you usually have the following
options:
-
Purchase the equipment for its then Fair Market
Value,
-
Extend the a Lease for a pre-determined length of
time (this will be specified in your a Lease
contract), or
-
Return the equipment at the end of term (pa Lease
check your Lease documents to see if this is one of
the options). Pa Lease note that some leasing
companies require you to enter into a new Lease
agreement of equal or greater value if you choose
this option.
Fair Market Value (FMV) Purchase
At the end of term you are obligated to purchase the
equipment for its then Fair Market Value.
10% Option
At the end of term, you usually have the following
options:
-
Purchase the equipment for 10% of its original
purchase price,
-
Extend the a Lease for a pre-determined length of
time (this will be specified in your a Lease
contract), or
-
Return the equipment at end of term (pa Lease check
your a Lease documents to see if this is one of the
options). Lease note that some leasing companies
require you to enter into a new a Lease agreement of
equal or greater value if you choose this option.
You are often required to give written notice of the
option you wish to select prior to the end of term.
Lease review your Lease agreement to understand the
timing of this written notice
10% Put
At the end of the Lease term you are obligated to
purchase the equipment for 10% of its original purchase
price.
$1 Buyout
The customer purchases the equipment for $1 at the end
of a capital
Lease and
title to the equipment is transferred from the leasing
company to the customer.
|
|
|
Top
|
|
|
|
|
Comparing Purchase Options
|
|
|
|
|
|
|
|
Advantages
|
Disadvantages
|
Commentary
|
|
Fair Market Value
|
End of term option is open ended.
Lower monthly payments.
Maximized tax benefit.
Great for rapidly depreciating equipment.
|
Fair Market Value can be ambiguous and result in a
disagreeably high valuation.
|
Fair Market Value allows you and your leasing company to
negotiate what the value of the equipment is at the end
of the Lease. There are normally 3 options at the end of
the term: buy the equipment for a mutually agreeable
price, continue leasing it, or return it. You should ask
your leasing company what they normally expect to
receive at the of the Lease term and if they can cap the
amount.
|
|
10% Purchase Option / Put
|
End of Lease payment is predetermined at either a fixed
percentage of the equipment cost or a specified dollar
amount.
|
You must pay the Fixed Put. It is considered an
additional payment.
|
The Fixed Put is beneficial if you would like a lower
monthly payment and are not concerned about making an
additional payment at the end of a Lease.
|
|
$1 Buyout
|
End of Lease payment is $1.00.
|
Higher monthly payments.
Minimized tax benefit.
|
You can own the equipment for $1.00 at the end of the
Lease.
|
|
|
|
Lease make sure to read your Lease contract. Definitions may
vary depending on the leasing company you choose.
|
|
|
Top
|
|
|
|
|
Comparing Financing Strategies
|
|
|
|
|
|
A Lease vs. Borrowing, Credit, and Cash
|
|
|
|
|
A Lease
|
Borrowing
|
Credit
|
Cash
|
|
Interest Rates
|
Fixed rate
|
Can fluctuate with the market
|
Fixed or floating
|
None
|
|
Speed of Approval
|
Within two business days after a bid has been selected
for most amounts
|
Days to weeks
|
Days to weeks
|
Instant
|
|
Down Payment
|
Typically, only 1 or 2 payments upfront which are
applied to your balance
|
Typically, 10-20% of the total amount
|
Typically, 10-20% of the total amount
|
100%
|
|
Financial Statements
|
Generally unnecessary for transactions under $150,000
|
Generally needed regardless of amount requested
|
Generally needed regardless of amount requested
|
None
|
|
Tax Benefits
|
Operating Lease payments can be 100% tax deductible when
shown as an operating expense.
|
Depreciation can be taken over the useful life of the
equipment.
|
Depreciation can be taken over the useful life of the
equipment.
|
Depreciation can be taken over the useful life of the
equipment.
|
|
Equipment Obsolescence
|
Used as a hedge against obsolescence. Why own when you
can a Lease?
|
You own the equipment.
|
You own the equipment.
|
You own the equipment.
|
|
|
|
Top
|
|
