Equipment Financing or Equipment Leasing is available to companies that with to purchase assets and wish to spread the payments over the useful life of the asset rather than making a large cash outlay at the time of acquisition. This financing Program can be used for both hard and soft assets. To qualify for this Program the company needs to be able to service the payment and this will be calculated using the “debt-service” ratio which is simply the ratio between the amounts of funds your company has coming in each month and the amount of monthly payments the company has obligations to pay.
Business Equipment Financing or Business Equipment Leasing can get you the equipment you need today and you will be able to pay it over time. In effect you will be spreading the cost of the Business Equipment Purchase over the useful life of the asset.
Be sure to speak with your Accountant as well. Many times there are tax rewards to leasing too so you will want to ensure the Commercial Equipment Lease is set up appropriately for your company. Fill out the request for Equipment Financing Quote below and we will get back with you quickly with the options that are available to you.
Commercial Equipment Leasing Questions and Answers
- What is a Commercial Equipment Lease?
- What type of Companies use Business Equipment Leasing?
- What types of Commercial Equipment can my Company Lease?
- Am I able to buy the Business Equipment at the end of the Equipment Lease?
- Are there tax benefits in doing a Business Lease?
- What are the guidelines in terms of length of time I need to be in business before I can enter an Equipment Lease?
- What things do I need to consider when looking at the lease-buy option?
- Is it possible for Equipment Leasing can assist my Cash Flow?
- What exactly is a Sale-Leaseback?
- What kind of advantages should I expect from a Sale-Leaseback?
- Do I need to put money down when entering an Equipment Lease?
- My Business is seasonal. Is it possible to tailor my Equipment Leasing payments to match my seasonal Cash Flow needs?
1. What is Commercial Equipment Leasing?
A Commercial Equipment Lease is a contract. By its terms, the “Lessor” (Leasing Company) gives the “Lessee” (The Customer) the exclusive right to use and possess the Commercial Equipment for a specified period of time. Equipment Financing has now become an acceptable, economical and much preferred method of Equipment Financing. An Equipment Lease in not Debt Financing and as such it can be a means of Working Capital.
The Equipment Leasing agreement may be based on a sole transaction for a specific piece of equipment. Alternatively, the Equipment Lease Agreement may be constructed as a “Master Lease” in which case there is a perpetual arrangement whereby a specific type of Commercial Equipment in Leased under independent schedules which are negotiated from time to time. Both scenarios will commit the Lessee to pay monthly amounts (or “rentals”) to the Lessor for the use of the Leased Commercial Equipment.
2. What type of Companies use Business Equipment Leasing?
All types of Companies, Medical Organizations, Industrial and Construction Firms, Nonprofit Organizations and Associations of all types as well as Governmental Agencies.
3. What types of Commercial Equipment can my Company Lease?
Any type tangible property which is subject to depreciation which is acquired in a Trade or Business Organization is eligible for Equipment Leasing. Here are a few examples:
- Tractors And Trailers
- Cars And Trucks
- Construction Equipment
- Telecommunication Systems & Related Equipment
- Machine Tools And Industrial Equipment
- Computer Systems & Data Processing Equipment
- Furniture, Fixtures & Office Equipment
- Medical Equipment
- Convenience Store Equipment
- And Much More
Feel free to Contact us for more information.
4. Am I able to buy the Business Equipment at the end of the Equipment Lease?
Essentially you will find three kinds of Purchase Options:
- FAIR MARKET VALUE: With this True Lease option you will get the most tax benefit as well as options at the termination of the Equipment Lease. For these reasons, it is the most popular. At the completion of the Lease, the Lessee has the choices of either
- Continuing to Lease the Equipment
- Return the Equipment
- Purchase the Equipment at the going rate for the type of Equipment that they are currently Leasing which is referred to as Fair Market Value.
- 10% PURCHASE OPTION: This choice will allow for a Fixed Purchase Price at the termination of the Equipment Lease. With this option the customer has three choices:
- Purchase the equipment for 10% of the original purchase price
- Continue to lease it
- Upgrade the equipment
- $1.00 PURCHASE OPTION: This is the least popular option for Equipment Financing as the Lessee is considered the owner of the Commercial Equipment for tax purposes. In this scenario the Purchase Option Cost is $1 plus the costs of transferring title if this is required.
Be sure to speak with your Accountant before making your decision about which type of Equipment Leasing is best for you.
5. Are there tax benefits in doing a Business Lease?
With a Capital Lease, the Lessee is considered to be the owner of the Equipment being Financed for taxation considerations. With this scenario the Lessee is able to claim Depreciation Deductions when filing their taxes.
With an Operating Lease, the Lessee is NOT the owner of the Equipment being Leased as this is considered an actual Lease for taxation considerations. While the Lessee is not able to claim Depreciation Deductions when filing their tax return they will be able to deduct the full amount of the Lease payments on their taxes and their payments will generally be lower than if they were using a Capital Lease.
Be sure to speak with your Accountant before making your decision about which type of Equipment Lease is best for you.
6. What are the guidelines in terms of length of time I need to be in business before I can enter an Equipment Lease?
Generally speaking Lease Programs require two years of business history. That being said, provisions are available based on the strength of the company’s and/or owner’s credit history. There are Lease Programs for start up businesses based on Personal Credit history.
7. What things do I need to consider when looking at the lease-buy option?
In general, your intentions for the Commercial Equipment to require will help to determine whether you should enter a Capital Lease (purchase) or an Operating Lease (true lease):
- Length of time you intend to keep the Commercial Equipment
- The likely life span of the Business Equipment
- Likelihood of the technology of the asset to become obsolete
- What inflation factors are to be considered to the type of equipment should you need to replace it?
- Is there a considerable savings in the payments based on the two options?
- What are the tax implications of doing a Capital Lease versus an Operating Lease? For this, speak to your Accountant for guidance.
8. Is it possible for Equipment Leasing can assist my Cash Flow?
“Cash flow is the movement of cash into or out of a business, project, or financial product. (Note that “cash” is used here in the broader sense of the term, where it includes bank deposits.) It is usually measured during a specified, finite period of time. Measurement of cash flow can be used for calculating other parameters that give information on a company’s value and situation. Source: Wikipedia.org”
The act of simply reducing payments may be considered increasing your Cash Flow as it can reduce the outflow of cash made by your business. Equipment Leasing Companies will expect that Commercial Equipment will have a Residual Resale Value at Lease Termination and they adjust the payments of the Lease accordingly. This is where the calculation of actual cash savings come from.
In general, an Operating Lease can help avoid or reduce additional minimum taxes. These taxes would otherwise be payable had the company Purchased the Equipment as opposed to Leasing the Equipment. This prevention of minimum tax responsibility may be a genuine cash savings.
9. What exactly is a Sale-Leaseback?
“Leaseback, short for sale-and-leaseback, is a financial transaction, where one sells an asset and leases it back for a long-term; therefore, one continues to be able to use the asset but no longer owns it. The transaction is generally done for fixed assets, notably real estate and planes, and the purposes are varied, including financing, accounting, taxing. Source: Wikipedia.org”
In other words a Sale-Leaseback is where the current owner of an asset sells the specific Equipment and the immediately Leases it back. Before the Sale-Leaseback can happen, many times the Equipment may have a lien to a third party. In this circumstance, the party holding the lien will be satisfied simultaneously with the sale.
10. What kind of advantages should I expect from a Sale-Leaseback?
In general, a Sale-Leaseback can be thought of quite simply as a refinance as many people have done on their homes or businesses. This practice can permit you to use the equity you have built up in the particular asset to increase your net cash flow by reducing your monthly outflows of cash.
Also, the practice of Equipment Leasing may allow you to take actual cash out of assets so the funds can be used for other purposes such as acquisition of other assets or business improvements.
This option can also be used to correct taxation concerns. A Sale-Leaseback can be an Operating Lease of Capital Lease. Your Sale-Leaseback can be done for purely taxation practices.
11. Do I need to put money down when entering into Equipment Leasing?
Under many circumstances Equipment Leasing is considered 100% financing. As such, the Equipment Finance Company pays the whole purchase price of the Equipment including the sales tax and any other fees associate with the acquisition including title fees Leases it to the Lessee with no down payment. With an Operating Equipment Lease, it is a requirement that the Lessor cover the entire purchase price of the asset with no assistance by the Lessee. That being said, Leases with higher risks (poorer credit or other extenuating circumstances) may necessitate the Lessor having to provide a down payment, making advance Lease Payment, pledge other assets for security or perhaps a security deposit.
12. My Business is seasonal. Is it possible to tailor my Equipment Leasing payments to match my seasonal Cash Flow needs?
Simply, Yes. Certain industries do have predictable seasonal slowdowns due to weather or market conditions. If your business is seasonal by nature, Equipment Leases can be set up so that your payments match your revenue stream.