Leasing provides you with the lowest possible
for the equipment you need
Leasing provides the lowest
possible monthly cost to USE the
equipment you need in your business.
Successful companies use equipment, they
don’t necessarily own the equipment.
Leasing allows you to keep your bank
and credit lines open for expansion
possibilities and operating capital. A true
lease does not impact bank lending limits.
Leasing keeps your equipment up
to date; equipment obsolescence is
not possible if you lease and update your
equipment regularly by leasing. This allows
one to stay on the cutting edge of
Leasing shifts the responsibility of
ownership to the lessor, not the
lessee. Thus when the lease is at
termination, the responsibility to sell the
equipment is up to the lessor. This allows
the lessee to concentrate on their core
business, not selling used and dated
A. OPERATING LEASE (FASB Lease)
- A lease meeting the
Financial Accounting Standards Board (FASB)
requirements for an off-balance sheet
transaction. The most difficult
of which is the rule requiring that the
net present value of the rental payment
stream does not exceed 90% of the
capitalized cost of the equipment at the
lessee's internal rate of return or
incremental borrowing rate.
- Equity is required for this
type of transaction. Not all
leasing companies provide Operating
Lease structures because of this.
Equipment Leasing Services has equity
resources and can provide Operating
- These leases have a buyout
clause at the end of the term.
- Purchase the equipment for the
fair market value determined at
- Trade-in the equipment for an
- Return the equipment to a
designated location for disposal and
Why an Operating
- True lease payments are 100%
tax-deductible – no depreciation or
interest expense calculations are
Leasing provides favorable tax
treatment and tax benefits. The IRS
considers an operating lease to be a
tax-deductible overhead expense, rather
than a purchase. As such, lease payments
are totally an income expense item.
Companies may find this favorable tax
treatment to reduce taxable income and
may also move the business to an overall
lower tax bracket. Each company is
unique and should consult their tax
- Leasing equipment protects a
company’s ability to upgrade to current
technology through equipment-return
provisions in a lease.
The most frequent benefit mentioned
by lessees is flexibility. By leasing
equipment on shorter term operating
leases, businesses are protected against
changes in their business and against
obsolete technology. IT managers, for
example, know that whatever equipment is
acquired today will be outdated for
their needs in a very short period of
- Leases preserve current
operating lines of credit – reduces down
payment necessary for acquiring
Leases can save a company from using
their current credit line for either the
down payment on an equipment purchase or
the actual purchase of the equipment.
Normal start up costs for leases include
only the first month’s rent and any doc
fees. This amount is significantly less
as an investment than the 20% down for a
- Leases reduce outstanding
debt recorded on the balance sheet –
better debt to equity ratio.
Balance Sheet management often
becomes the primary motivation to lease.
Operating leases are not considered
long-term debt or liability, so better
debt to equity ratios are reflected.
Leasing is asset specific therefore
no blanket liens are filed on your
property. A UCC will be filed only on
the asset you are leasing.
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B. CAPITAL LEASE
- A capital 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
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 (usually $1.00 or in
(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
- A Capital lease that must be
reflected on the company balance sheet
as an asset and corresponding liability.
Generally, this applies to leases where
the lessee acquires essentially all of
the economic benefits and risks of the
leased property. In Contrast with an
Operating Lease. A Capital Lease is
treated by the lessee as both the
borrowing of funds and the acquisition
of an asset to be depreciated; thus the
lease is recorded on the lessee's
balance sheet as an asset and
corresponding liability (lease payable).
Periodic lessee expenses consist of
interest on the debt and depreciation of
- Typically, $1.00 buy-out
leases are considered capital leases and
is very similar to a financing
agreement, meaning that payments are
similar to a bank loan.
Usually, capital leases are not 100% tax
deductible. The equipment is put on a
depreciation schedule and written off
over a period of years.
Why a Capital
Down payment is 3% to 6% as opposed
to 10% to 20% for a bank loan
- Lessee takes depreciation
In a capital lease, the lessee does
not get the tax benefits, however, the
lessee can depreciate the equipment over
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C. TRAC LEASE (Commercial Vehicles)
A TRAC (Terminal Rental Adjustment Clause)
lease is a modified Open End Lease limited
to VIN numbered motor vehicles and trailers
used at least 50% of the time for business
purposes. It enables the customer to set the
residual value of the vehicle at the
beginning of the lease, which is used to
determine monthly payments.
Higher residual amounts = lower
monthly payments = higher purchase
Lower residual amounts = higher monthly
payments = lower purchase options
TRAC leases have several options at the
end of the term:
- Purchase the vehicle for the
residual value. The lessee receives an
adjustment, or cash rebate, if the
actual residual value at the end of the
term is higher than what was chosen at
the beginning of the lease. If it is
lower, lessee will pay the difference.
- Trade-in the vehicle or equipment to
cover the remaining amount due
- Return the vehicle to a designated
location for disposal and settlement
Let us help you determine your best
option and assist you with future leasing
needs for your business.
Why a TRAC Lease?
- For eligible items of
transportation equipment, ELS and the
lessee are able to establish a
pre-determined end-of-term equipment
value. A TRAC Lease is a True
Lease with a Terminal Rental Adjustment
- TRAC provisions can benefit
the lessee in two ways.
First, they allow
the lessee to share in the residual
sales value of the vehicle.
Second, because the
lessee effectively guarantees the
vehicle’s residual value, the rentals to
be paid during the lease term may be
lower than otherwise available.
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D. SALE LEASEBACK
- Equipment sale leaseback is
the sale of an asset (business
equipment) for cash. The asset
remains on the seller's property with a
contract to lease it back from the
source purchasing it. The seller retains
ownership of the asset at the term end.
From office to warehouse, any equipment that
is owned outright and is involved with the
daily operation of the business should
qualify for sale and leaseback financing.
However, equipment age and industry
restrictions may apply.
Why a Sale
- Get up to 70% of the original
purchase price on equipment you own.
- The equipment stays on your property
for your use.
- You can write off 100% of the
- No restrictions on how the money is
- Take idle equity out of equipment
and use it for working capital.
- No other collateral ... no personal
assets and no other business assets.
- Your lease payments do not interfere
with your credit lines at the bank
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