Leasing defined
A lease is a contractual arrangement in which a leasing company (lessor)
gives a customer (lessee) the right to use its equipment for a specified
length of time (lease term) and specified payment (usually monthly).
Depending on the lease structure, at the end of the lease term the customer
can either purchase, return, or continue to lease the equipment.
Leasing works for
any type of business
Every imaginable type of organization leases throughout the world including
proprietorships, partnerships, corporations, government agencies, religious
and non-profit organizations. Over 80% of American businesses lease at
least one of their equipment acquisitions and nearly 90% say they would
choose to lease again.
Almost limitless
possibilities
You can lease anything associated with the operations of your business
(including all types of capital equipment, hardware, software, and soft
costs such as installation and consultation).
How leasing is
done on eLease
Fill out a short online lease application. eLease will review your
application and contact you the moment you are approved to begin the
leasing process.
Leasing has
become the preferred method of acquiring equipment among businesses.
Currently, 35% of all equipment is leased. Leasing offers real advantages
including better value, more convenience and greater control.
» Better Value
Make better use of your money
Conventional bank loans
usually require more money upfront than leasing and often have
restrictive covenants.
Conventional debt
financing may require a 10-20% down payment.
Leasing generally
requires only one or two payments upfront, which are applied to your
future payments.
Click here to compare eLease to other
financing choices.
Finance 100% of your costs
In most cases, the full amount of the equipment, as well as the service,
shipping, installation costs and maintenance can be included in the
lease. This spreads the cost out evenly over the term of the lease
freeing up your money to work harder for you.
Realize significant tax savings
Monthly payments on operating leases are typically viewed as operating
expenses offering significant tax benefits. You should always consult
with your financial advisor to determine the most tax-beneficial lease
for your company.
» More Convenient
Speedy and easy
With eLease, most applications receive bids within two business days.
This means that you can acquire equipment now, so your business can focus
on increasing revenues.
You can tailor a solution that meets your requirements
Leasing is flexible so that you can tailor the length and amount of your
payments to meet your business' needs.
"step-up"
leases allow you to start with low payments that increase over time
so you can concentrate on using the equipment to generate revenue.
"skip" leases
restrict payments to given months of the year so you can plan ahead
to cover the slow times.
"deferred
payment" leases allow a significant grace period before your
first payment is due.
"master" leases
offer a more convenient way to add more equipment to your existing
lease.
» Greater Control
Avoid the risk of your equipment becoming obsolete
With ownership you run the risk that new technology will render your
equipment obsolete within a few years, leaving you with equipment that no
longer meets your needs and that is difficult to sell. Leasing allows you
to replace or upgrade equipment to keep your business competitive.
Improve your cash flow forecasting
The fixed nature of a lease obligation eliminates uncertainty about the
future cost of the equipment. Your lease payments facilitate more
accurate forecasting and planning.
No ownership dilution
Leasing allows you to increase the cash flow of your company without
bringing in investors to finance capital expenditures.
While leasing
companies may use the same name to describe a lease, the terms and
conditions written in their contracts often vary. Be certain to review
your documents carefully and ask your leasing company or eLease to
explain anything that is unclear.
True Lease or Operating Lease
What it is good for: Used with equipment that rapidly depreciates or
becomes obsolete in a short period of time.
How it works:
In a true or operating lease, the leasing company retains ownership
of the equipment during the lease. True or operating leases
typically have no predetermined buyouts; customers usually classify
these payments as an operating expense.
Benefits:
Lower payments and typically the most tax-friendly form of leasing,
Additionally, true or operating leases offer three choices at the
end of your lease:
return the equipment to the leasing
company,
purchase the equipment at its fair
market value or option amount, or
extend your lease term.
Purchase the equipment for its then Fair
Market Value,
Extend the lease for a pre-determined
length of time (this will be specified in your lease contract), or
Return the equipment at the end of term
(please check your lease documents to see if this is one of the options).
Please note that some leasing companies require you to enter into a new
lease agreement of equal or greater value if you choose this option.
Purchase the equipment for 10% of its
original purchase price,
Extend the lease for a pre-determined
length of time (this will be specified in your lease contract), or
Return the equipment at end of term
(please check your lease documents to see if this is one of the options).
Please note that some leasing companies require you to enter into a new
lease agreement of equal or greater value if you choose this option.
Finance Lease or Capital Lease
What it is good for: If you plan on owning the equipment at the end
of the lease.
How it works:
The full purchase price plus interest charges are spread over the
length of the lease.
Benefits:
You will own the equipment at the end of the lease for a minimal
amount, such as a fixed percentage of the original cost or $1.00.
Skip Lease
What it is good for: Organizations that need a flexible repayment
schedule such as seasonal businesses, agricultural companies,
recreational services firms, and school systems.
How it works:
You specify months when no payments are made.
Benefits:
Flexibility to adjust to irregular cash flow.
Sale Leaseback
What it is good for: Customers who decide that leasing is more
beneficial after having purchased their equipment. Sale-leaseback
also allows companies to raise cash for other investments or cash
flow purposes.
How it works:
The business that has already purchased equipment sells it to a
leasing company, which, in turn takes ownership of the equipment and
then leases it back to the business. eLease requires that the
equipment be purchased within 90 days.
Benefits:
The sale-leaseback allows you to put money back into your business
or into investments that appreciate rather than depreciate.
60 or 90-Day Deferred Lease
What it is good for: Businesses that need equipment for operation
and development that will not immediately generate revenue.
How it works:
A 60 or 90-day deferred lease can be structured as a finance lease or a true lease. There is usually no
advance payment required, and the first payment is not due until 60
or 90 days after the lease begins.
Benefits:
The equipment you need can be acquired with little to no money up
front and no payments for 2-3 months.
Master Lease
What it is good for: Leasing additional equipment over a certain
period of time.
How it works:
Separate lease schedules are created to accommodate the addition of
equipment over that period of time. The master lease governs the
basic terms and conditions. Each schedule may include different end
of term options and different lease lengths but all will come under
one "e;Master Lease."e;
Benefits:
Acquiring additional equipment is made more convenient.
Municipal Lease
What it is good for: Local and state government organizations
looking to acquire equipment.
How it works:
The tax structures and details of municipal leases vary considerably
from standard business leases. Seek the advice of your financial
advisor to better understand your municipal lease options.
Benefits:
Municipal leases are designed specifically for local and state
government organizations.
Step Up Lease
What it is good for: Businesses whose financed equipment will become
more profitable over time.
How it works:
Payments increase according to a regular schedule over the life of
the lease.
Benefits:
Payments can be differed to match cash flow.
Leasing Industry Links
Equipment
Leasing Association. The
Equipment Leasing Association (ELA) is a national organization
comprised of member companies within the equipment leasing and
finance industry.
United
Association of Equipment Leasing.
The mission of the United Association of Equipment Leasing (UAEL) is
to further the welfare of its members and to provide and promote a
forum for interaction and programs which enhance business
opportunity
National
Association of Equipment Leasing Brokers. The National Association of
Equipment Leasing Brokers (NAELB) is an organization formed to
promote the interests of equipment leasing brokers through
education, advocacy, improved communication with funders and
programs designed to upgrade the professionalism and profitability
of brokers, funders and others engaged in the business of equipment
lease financing.
Equipment
Leasing and Finance Foundation.
The Equipment Leasing and Finance Foundation, the prime developer
and disseminator of the body of knowledge for the equipment lease
financing industry, since 1989. A non-profit, tax deductible
organization.
Monitor
Daily. Every month
the Monitor provides readers with in-depth information supplied by
trusted sources in the leasing and financial centers of the United
States.
Buyout/Purchase
options are determined prior to the inception of the lease. They outline
the customer's final financial obligations at the end of the
lease. Leasing provides a number of options for purchasing your
equipment, including:
Fair Market Value (FMV) Purchase Option
At the end of term, you usually have the following options:
Fair Market Value (FMV) Purchase
At the end of term you are obligated to purchase the equipment for its
then Fair Market Value.
10% Option
At the end of term, you usually have the following options:
You are often
required to give written notice of the option you wish to select prior to
the end of term. Please review your lease agreement to understand the
timing of this written notice
10% Put
At the end of the lease term you are obligated to purchase the equipment
for 10% of its original purchase price.
$1 Buyout
The customer purchases the equipment for $1 at the end of a capital
lease and title to the equipment is transferred from the
leasing company to the customer.
End of term option
is open ended.
Lower monthly payments.
Maximized tax benefit.
Great for rapidly depreciating equipment.
Fair Market
Value can be ambiguous and result in a disagreeably high valuation.
Fair Market
Value allows you and your leasing company to negotiate what the value of
the equipment is at the end of the lease. There are normally 3 options at
the end of the term: buy the equipment for a mutually agreeable price,
continue leasing it, or return it. You should ask your leasing company
what they normally expect to receive at the of the lease term and if they
can cap the amount.
10% Purchase Option / Put
End of lease
payment is predetermined at either a fixed percentage of the equipment
cost or a specified dollar amount.
You must pay the
Fixed Put. It is considered an additional payment.
The Fixed Put is
beneficial if you would like a lower monthly payment and are not
concerned about making an additional payment at the end of lease.
$1 Buyout
End of lease
payment is $1.00.
Higher monthly
payments.
Minimized tax benefit.
You can own the
equipment for $1.00 at the end of the lease.
Please make sure
to read your lease contract. Definitions may vary depending on the leasing
company you choose.
