We bring everything from concepts to funding to the table for our clients. EEDC is happy to sit down and discuss these options and many others.
Business & Equipment Lease Structures
(did you know there were so many, we have only listed a few)
(did you know there were so many, we have only listed a few)
Capital Leases
Type of lease classified and accounted for by a lessee as a purchase and by the lessor as a sale or financing, if it meets any one of the following criteria:
(a) the lessor transfers ownership to the lessee at the end of the lease term;
(b) the lease contains an option to purchase the asset at a bargain price;
(c) the lease term is equal to 75 percent or more of the estimated economic life of the property (exceptions for used property leased toward the end of its useful life); or
(d) the present value of minimum lease rental payments is equal to 90 percent or more of the fair market value of the leased asset less related investment tax credits retained by the lessor.
(a) the lessor transfers ownership to the lessee at the end of the lease term;
(b) the lease contains an option to purchase the asset at a bargain price;
(c) the lease term is equal to 75 percent or more of the estimated economic life of the property (exceptions for used property leased toward the end of its useful life); or
(d) the present value of minimum lease rental payments is equal to 90 percent or more of the fair market value of the leased asset less related investment tax credits retained by the lessor.
Equipment Finance Agreements
A finance lease is a full-payout, non-cancelable agreement, in which the lessee is responsible for maintenance, taxes and insurance. Finance leases are most attractive in cases where the lessee wants the tax benefits of ownership or expects the equipment’s residual value to be high. These leases are structured as equipment financing agreements with residuals up to 10 percent. The lessee purchases the equipment upon lease termination at a pre-agreed amount. The term of a finance lease tends to be longer, nearly covering the useful life of the equipment.
Leveraged Lease
Leveraged leases are great opportunities for companies without access to immediate cash to lease necessary equipment or machinery. In a leveraged lease agreement, the lessor borrows enough funds from the lender to acquire the machinery or equipment, which is then leased to the lessee. The financing provided by the lender is without recourse, which allows the lender to hold the title of the leased asset. The Lessee’s payments every month are directed to the Lessor, who in turn, pays the lender.
Leveraged leases are a type of true lease, which is beneficial to the lessee because it allows them to claim the full amount of lease payment as expenses. Additionally, the Lessee has the right to use the leased equipment or machinery, but is not responsible for upkeep and maintenance of the asset.
Leveraged leases are a type of true lease, which is beneficial to the lessee because it allows them to claim the full amount of lease payment as expenses. Additionally, the Lessee has the right to use the leased equipment or machinery, but is not responsible for upkeep and maintenance of the asset.
Operating Lease
An operating lease is particularly attractive to companies that continually update or replace equipment and want to use equipment without ownership, but also want to return equipment at lease-end and avoid technological obsolescence.
An operating lease usually results in the lowest payment of any financing alternative and is an excellent strategy for bypassing capital budgeting restraints. It typically qualifies for off-balance sheet treatment and can result in improved Return On Asset (ROA) due to a lower asset base. It can also result in higher reported earnings in the early years of the lease.
A lease that is treated as a true lease (as opposed to a loan) for book accounting purposes. An operating lease must have all of the following characteristics:
An operating lease usually results in the lowest payment of any financing alternative and is an excellent strategy for bypassing capital budgeting restraints. It typically qualifies for off-balance sheet treatment and can result in improved Return On Asset (ROA) due to a lower asset base. It can also result in higher reported earnings in the early years of the lease.
A lease that is treated as a true lease (as opposed to a loan) for book accounting purposes. An operating lease must have all of the following characteristics:
- Lease term is less that 75% of estimated economic life of the equipment
- Present value of lease payment is less than 90% of the equipment’s fair market value
- Lease cannot contain a bargain purchase option (i.e. less than the fair market value)
- Ownership is retained by the lessor during and after the lease term
- The lessee accounts for an operating lease without showing an asset (for the equipment) or liability (for the lease payment obligations) on his balance sheet. Periodic payments are accounted for by the lessee as operating expenses of the period.