Equipment Leasing Programs - Other Programs

First off, I apologize for the delay in updating the leasing blog. Let’s look at some other forms of equipment lease programs. We will overview deferred lease payment programs, seasonal payment / skip lease programs and pre-paid purchase option programs.

• Deferred Payment Programs:

For companies that need equipment today yet will not generate profit / revenue for a short period of time, a 60 to 90 day deferred lease structure is very attractive. The lease is structured so that the initial months have nominal or no payments. This type of lease can also be structured as a finance lease or a true lease. Usually one advance payment required, and the next payment is not due until the second (60 day) or third (90 day) month of the lease.

• Seasonal Payment or Skip Lease Programs

Especially ideal for those in agricultural industries, this lease is designed for businesses with seasonal cash flows. The lease can be tailored so that payments might be lower during the summer months and higher during the rest of the year or vice versa. School systems also benefit from this type of lease structure.

• Pre-Paid Purchase Option:

For new businesses and those with not so perfect credit, the pre-paid purchase option allows you to lower your monthly payments by pre-paying a percentage of the equipment cost. Typically, you will have the ability to purchase the equipment at lease end for $1.00.

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.