Equipment Leasing Programs - Capital Lease

The simple definition of a capital lease is: A lease obligation that has to be capitalized on the balance sheet. In more detail, the capital lease structure allows you to buy the equipment at the end of the lease term. Typical end of lease options for a capital lease are the 10% or $1.00 purchase option. This is especially advantageous for companies that intend to keep the equipment at the end of the lease term. You can also trade in the equipment for new equipment or sell the equipment at the end of the lease.

To be more specific, this lease structure is treated by the lessee as both the borrowing of funds and the acquisition of an asset to be depreciated. The lease is recorded on the lessee's balance sheet as an asset and corresponding liability.

Capital Leases will contain one or more of the following:

• Ownership of the property is transferred to the lessee at the end of the lease term
• The lease contains a purchase option such as 10% or $1.00 out
• The lease term represents at least 75 percent of the estimated economic life of the leased property
• The present value of the minimum lease payments at the beginning of the lease term is 90 percent or more of the fair value of the leased property to the lessor at the inception of the lease less any related investment tax credit retained by and expected to be realized by the lessor.