 Leasing is an efficient and
affordable method to acquire equipment and manage cash flow.
According to industry studies, 80% of businesses lease equipment,
and equipment leasing accounts for approximately $200 billion a
year, which is one third of all capital investments.
Benefits of
Leasing
Leasing offers advantages
over other finance methods including:
- 100% financing
- Possible tax deductions (discuss with your
accountant about the potential benefits under IRS Section 179)
- Conservation of working capital
- Immediate write-offs
- Balance sheet management
- Asset management
- Flexible end of term options
- Easy upgrades
- Fast processing
Businesses have different needs, different cash flow
patterns and different streams of income. For example, start-up
companies are characterized by little cash and limited debt lines.
Mature companies might have other needs: to keep debt lines free, to
comply with debt covenants and to avoid committing to equipment that
may quickly become obsolete. These business conditions - cash flow,
specific equipment needs and tax situations help define the terms of
your lease. Moreover, a lease provides the use of equipment for
specific periods of time at fixed rental payments. Therefore,
leasing allows you to be more flexible in the management of your
equipment and your money.
Lessees (Business Equipment
Users)
Lessees vary widely from
small, one-person operations to Fortune 500 companies. Any sole
proprietorship, partnership, corporation, or LLC can lease
equipments for business purpose.
Lessors (Leasing
Companies)
There are four basic
types of leasing companies:
- Banks, or
bank-affiliated firms
- Capital leasing
companies - subsidiaries of equipment manufacturers, leasing their
parent's products
- Independent leasing
companies - small and specialized or large and diversified
- Others -investment
bankers, independent brokers and packagers who bring the parties
of a lease together
Factors to
Consider
The lessees consider the
following factors in choosing the most effective type of
lease:
- The type of
equipment you want to lease
- How long you
want to use the equipment
- What you intend
to do with the equipment at the end of your lease
- Your tax
situation
- Your cash flow
- Your company’s
specific needs as they relate to future
growth
Types of
Leases
Lessees may lease one
piece of equipment at a time or many items with a single lease.
Companies that continually acquire equipment may use a master lease
to avoid executing a new contract for every acquisition.
There are two common
types of leases:
- Operating Lease (True Lease)
The term is
shorter than the expected useful life of the equipment. This type
of lease is popular for high-tech equipment, because shorter-term
leases help equipment users stay ahead of equipment
obsolescence.
The lessor claims the tax benefits available with ownership,
and assumes the risk of equipment obsolescence. The lessee has to
pay a higher rent to lessen the investment exposure of the lessor.
The lessee may deduct the lease payments as an expense. The
lessor, as owner, may grant the lessee a right to purchase the
equipment for either fair market value or a stipulated price at
the lease maturity.
- Finance Lease (Net
Lease)
The lessee is considered the owner of the
equipment for tax purposes, and allowed to take depreciation of
the equipment. Only the interest portion of the rental
payments can be
expensed.
The
long term lease usually runs for most of the equipment's useful
life. The lessor imposes a substantial prepayment penalty for a
lessee's early lease termination. The lessee pays a
lower Rent tend because of the longer term and less residual
risk.
Types of
Equipment Leased
New or used equipment needed in a trade or
business or held for the production of income.
- Agricultural
- Aircraft
- Automobile
- Broadcast
- Buses
- Cable
- Communications
- Computer
- Construction
- Electronic
- Emergency vehicles
- Energy
- Furniture/fixtures
- Gaming
- Graphic arts
- Industrial
- Intermodal
- Laundry/dry cleaning
- Livestock
- Machine tool
- Mailroom
- Marine
- Materials handling
- Medical
- Mining
- Modular buildings
- Office systems
- Point of sale/banking
- Printing
- Recreation
- Recycling
- Restaurant
- Satellite
- Software
- Trucks & trailers
- Utility
- Video
- Waste removal
Term of the
Leases
A lease can be structured for a term of 1 to
5 years
Lease-End
Options
- One Dollar Purchase Option (Lease
Purchase)
The monthly payment is higher than the Fair Market
Value option, but the advantage of this type of lease is that you
will own the equipment with a payment of $1.00 at the close of the
lease. The potential tax benefits associated with the one
dollar purchase option is defined under IRS Section
179.
- Fair Market Value (FMV)
Delivers the
lowest monthly payment of a standard lease with flexible purchase
options at lease end. This choice is the preferred option for
those who concerns about equipment obsolescence. It allows you to
return the equipment, purchase equipment for the Fair Market Value
or continue to lease the equipment under lease renewal. Lease
payments are often fully deductible as an operating expense with
an FMV lease.
- 10% Purchase Option
Your payment will
be higher than the Fair Market Value option, but lower than a
One-Dollar Buyout lease. At the end of the lease, you may
choose to purchase equipment for 10% of the original cost or
return the equipment.
Equipment Leasing
Programs
Program
EF110
Start-Up
Program
- No time in business requirement, except
food/beverage service
- Food/beverage business requires a one
year operating history
- Amounts $1,000-$30,000
- Zero security deposit for $1,000-$10,000
- Terms of 33-60 month
- Additional collaterals of CD's, stocks,
bonds, autos and other assets (no real estate) are considered as
creative alternatives for individual credits
Program
EF120
Application Only Program
- Applicaiton only for amounts $5,000 to
$90,000
- Bank and trade reference are not required
for amounts up to $50,000
- Min 2 years time in business
- FICO 650+
Program
EF130
Challenged Credit Program
- Companies with less than 1 year operating
history
- Companies with financial hardship in the
past must present adequate cash flow from operation to support the
lease payments
- No open judgments, liens and repossessions
- BK must be released or discharged for 3
years
- Min FICO 560+
- For FICO below 560, a co-signer with min
FICO 650+ may be acceptable
- Amounts to $150,000. Initial
$25,000-$75,000, with another $75,000 in 3 months provided that
all monthly payments and other conditions have been met
- Additional collateral of residential
and/or commercial real estate property will increase total amount
up to $600,000
- Terms of 12-120 month with a purchase
option at the end of lease at 10% or fair market value
- Early buyout option with generous term
available after 14 months of the lease
- Lease conversion option featuring
lower interest rate available to an applicant with acceptable
credit after 14 months of the lease
- No equipment restrictions unless they are
too old
Program
EF140
Trucking & Construction Equipment
Program
- Work trucks, construction equipment and
commercial trailers only
- Credit driven guideline
- Min FICO 600+ for businesses with 5+ years
of operating history
- BK must be discharged or dismissed 7+
years for all personal guarantors or businesses
- Amounts $20,000-$350,000
- Terms of 36-60 month
- Asset must be ten years old or newer
- Asset must be within 10% of comparable
values. If the financed amount is beyond 10% of comp
value, additional upfront funds will be required to bring the
amount financed into comp value range
- Min value of $20,000 per asset,
- All financed asset must have a proven and
accessible secondary market
- Approved equipment sellers include:
licensed equipment dealers, financial institutions, private
businesses (for titled equipment only)
- Private party sales and sale-leasebacks
are not accepted
- Refinance transactions are considered on a
case-by-case basis
- Excluded assets: aggregate equipment,
ambulances, attachments, buses, blasthole drilling rigs, cable
placers, cars, containers, crushers, fire trucks, lattice cranes,
horizontal directional drill, limousines, partial equipment,
passenger vehicles, salvage titles, screeners, shears, shredders,
specialty equipment, street sweepers, tub grinders, trenchers
- Additional collateral, home ownership,
vendor recourse, bank balance, industry experience, trade
references, credit references are not required
Program EF150
Medical
Practioner Program
- Application only - up to
$100,000 MD's and Specialists (including startups)
- Application only - up to $75,000 DDS, DMD
and Veterinarians (including startups)
- Application only - up to $25,000 startup
Optometrists for optometry exam equipment
- Application only - up to $15,000 startup
Chiropractors, Physical Therapists, Pharmacists and
Podiatrists
- Verification of professional license
required
- Clean credit bureau on applicant(s)
- Equipment used in professional practice
- On transaction over the above "application
only" limits, financial statements and/or tax returns may be
required
Program
EF160
Restaurant Program
- Application only up to $25,000
- 3 years in business
- Minimum FICO 660
- D&B listed
- Medium 4 average bank balance
- Essential use equipment only
- Expansions and moves
considered
Program
EF170
Software Program
- $1.00 Buy Out leases only
- Maximum term 36-month
- Essential use software only
- Qualified software dealers or developers
only
- Copy of license agreement may be required
- Software Only addendum required for 100%
software transactions
Program EF180
Used
Equipment Program
- Condition report from vendor required
- Maximum 36-month term on equipment up to 5
years old
- Maximum 60-month term on hard assets up to
10 years old
- $1.00 Buy Out only
- Must pass clear title
- Essential use equipment
only
Program EF190
Rental
Equipment Program
- Rental companies only
- Light and heavy duty
industrial/construction equipment (non-titled)
- Forklifts/pallet jacks
- Large tools (radial/table saws, planers,
etc.) - excluding hand tools (hammer, wrenches)
- Dish machines
- Landscaping machinery
- Surveying equipment
- Stand alone refrigeration units or ice
machines - excluding built-in models
- Portable rest rooms (subject to receipt of
active waste removal license)
- Catering/party goods supplies (tents,
chairs, tables serving/chafing dishes)
- Roll-off containers and dumpsters
- Shopping carts
- Non medical electric mobility (for stores,
malls and parks only)
- Water-testing machines (not installed on
permanent units)
- Commercial audio/video production -
excluding games, movies or home use
To submit a proposal and request for program
information, click Equipment
Finance Quote.
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