What type of financing is right for your company?
A lease-to-purchase, or a finance lease, as it is more commonly known, is a transaction where the equipment can be purchased by the lessee for a pre-determined dollar amount at the end of the lease term. In most lease scenarios, this option is $1.00 or $101.00. In this lease scenario, tax benefits, such as expensing depreciation and interest, are passed on to the lessee. Advantages of capital leases:
- Allows you to make monthly payments and conserve cash flow.
- Tax benefits (depreciation benefits based on the tax laws for that year).
- Allows you to finance with a source other than your financial institution. Leaves your lines of credit and the ability to borrow from your local bank more accessible.
- Simple paperwork. Unlike a mortgage, our paperwork is less than 10 pages.
- Little or no cash outlay and financing for up to seven years.
- Fixed payment with a fixed rate so that you are not impacted by volatile market conditions.
An operating lease is also a transaction where the equipment can be purchased for a predetermined dollar amount at the end of the lease term. Normally, this can be stated anywhere from 5% to 25%. At this time, the lessee has the option to:
- Return the equipment back to the lessor,
- Exercise the option, or
- Refinance the option
- Lower monthly payments than a capital lease.
- Conserves cash flow.
- Possible tax benefits (off balance sheet possible, too).
- Can be used as a tool if a company has used all of their capital expenditure budget as this could be used as a rental.
- Please consult a tax advisor to determine how your lease should be classified and what your actual tax benefits are.
A tax lease is considered to be off balance sheet and assists in avoiding leverage and covenant issues. It can be used to conserve cash flow and to not show ownership position on the balance sheet. The lessee has a fair market value (FMV) option at the end of the lease term with three options:
- Return the equipment back to the lessor
- Exercise the option
- Refinance the option
A tax lease generally results in lower monthly payments than a capital lease and / or operating lease. These off balance sheet leases, where the entire monthly payment is expensed, can be used as a tool if a company has used all of their capital budget.
Loans are set up similar to a capital lease, except there is no purchase option at the end of the term. It is a security agreement that Industrial Capital Equipment would finance for a fixed period, with a fixed rate. Like a capital lease, the debtor is entitled to depreciation benefits and interest expense write-offs. The amount owed shows as a liability on your balance sheet. Rates are conveyed on the note as are the pre-payment clauses.
Short term leases that can assist in bypassing budgets, waiting for future budgets or to get equipment in for short term projects. Can be as short as six months and as long as two years.
IEC was set up solely to assist manufacturers and their distributors to provide financing for their customers. Our approval process is quick, our documentation is simple and our solutions will provide you the financing your company needs!