Project Financing

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With the relatively short useful life span of IT assets, leasing can provide significant advantages for you over other acquisition strategies. Benefits include:

  • Preservation of Capital
    Companies need to fund receivables, inventory, payroll and equipment. Some businesses may not have access to bank loans or supplemental sources of capital. Often, especially in a down economy, a shortage of capital can develop. Leasing can help prevent this by reducing the capital required for your equipment.
  • Low Up-Front Costs
    Funding your equipment acquisitions with a conventional bank loan usually requires a 10 percent to 20 percent down payment and often includes restrictive covenants. Leasing normally requires only one or two monthly payments in advance, which are applied to future payments.
  • Overcome Budget Constraints
    Most companies operate under budgetary constraints -- the result of a formal planning process or the availability of funds. With formal planning, companies can use leasing to bypass the capital budget, as payments are usually accounted for as expenses. If the budget is based on capital resources available and the company can't fund the full purchase price, a payment option is often the answer.
  • Keep on Top of New Technology
    Leasing helps keep technology up to date by facilitating periodic replacement of technology assets and permitting replacement even if capital resources are not available.
  • Solves Disposition Issues
    When customers reach the end of their leases, they can return the equipment to the leasing company. This relieves them of the hassles, costs and liabilities involved in disposing of technology equipment.
  • 100-Percent Financing
    In most cases, the lease covers all expenses: the full cost of the equipment, service, shipping, installation costs and maintenance.
  • Potential Tax Savings
    Owned assets are normally capitalized. Therefore, depreciation and interest expense are written off for tax purposes. Monthly lease payments are typically viewed as operating expenses. This usually offers significant tax benefits. Companies should always consult with a financial advisor to determine the proper tax strategy.

Lease - A lease is a contractual arrangement in which a leasing company (lesser) gives you (lessee) the right to use its equipment for a specified length of time (lease term) and payment (usually monthly). Depending on the lease structure, the customer can purchase, return, or continue to lease the equipment at the end of the lease term.

  • $1 Buyout
    At the end of the lease term the lessee can purchase the equipment for one dollar. This structure is ideal if the useful life of the equipment is expected to be greater than the lease term. A $1 buyout lease normally qualifies as a capital lease or finance lease. (Consult a tax advisor to verify proper tax and accounting treatment.)
  • 10 Percent Buyout
    Under this structure, the lessee has the option to purchase the equipment for 10 percent of the original cost at the end of the term and the payment is lower that in a $1 buyout lease. This structure is ideal is the useful life of the equipment may be longer than the lease term and the lessee wants a fixed purchase price. A 10 percent buyout lease usually qualifies as a capital or finance lease. (Consult a tax advisor to verify proper tax and accounting treatment.)
  • Fair Market Value Buyout (FMV)
    This lease structure normally provides the lowest lease payment and normally qualifies as an operating or true lease. (Consult a tax adviser to verify proper tax and accounting treatment.) At the end of the term, the lessee has the option to purchase the equipment for its fair market value as determined at that point in time. This structure is ideal if the expected useful life of the equipment is equal to the lease term, the lessee desires the lowest monthly payment possible or the lessee desires the maximum tax benefits.

Under all types of leases the lessee has the option to purchase the equipment, return the equipment or extend the lease at the end of the term?
Tax Structures - For the business owner, there are two primary types of leases that determine tax benefits: 1) operating or true leases and 2) capital or finance leases. A lease is usually considered a true lease if, at the end of the lease term, the lessee has the option to purchase the equipment at fair market value (FMV). Conversely, if the lease agreement contains a bargain purchase option, such as $1 or 10 percent of the original purchase price, it would be treated as a finance lease. Always consult a tax advisor to determine lease treatment and for advice on which lease structure is most appropriate for you and your customers.