Equipment Financing or Leasing Programs:
Solutions-Based Financing for Long-Term Success
Finding the right financial solution for your company isn’t a one-size-fits-all approach. Rather, your equipment financing or leasing program should be customized to your particular business needs.
Here are just some of the many programs and solutions to use to your company’s advantage when it comes to financing your long-term business investments. If you have a question or concern about any of these offered programs, contact Capitol Leasing & Financing Service today.
Equipment Financing Agreement
Equipment financing agreements (EFA) have increased in popularity and are one of the most common financing programs offered by CLFS. They are typically structured as a note and security agreement with a fixed rate.
EFAs benefit your business because they are less restrictive than a traditional bank loan. Similar to a capital lease, the only security on a term financing note is the financed asset listed on the security agreement schedule.
Capital leases are very common today, especially leases with a residual buyout of $1.00. Under U.S. Generally Accepted Accounting Principles (GAAP), a capital lease doesn’t qualify as an operating lease, and as a result, both the asset and the attendant liability are recorded on your balance sheet.
To your advantage, however, the leased asset depreciates as if you purchased it with cash or financed it with a traditional loan. Capital leases are typically secured by the equipment on the lease schedule itself, and these leases are drafted with the payment structures and end-of-term purchase options that best fit your business needs.
Under GAAP SFAS13 guidelines, an operating lease benefits your business by keeping the liability and asset off your balance sheet. This small-but-significant difference improves your company’s financial ratios and enhances your overall financial reporting.
Operating leases are most commonly taken out as a hedge against obsolescence, especially for costly technological asset acquisitions. Also, in some cases, the payment structure of an operating lease even allows your business to remain within its bank covenants.
A tax lease focuses mainly on whichever party retains the “benefits and burdens” of ownership of a particular asset, making it more difficult to qualify than a GAAP operating lease. Still yet, a tax lease does count as an operating lease under Internal Revenue Code parameters.
While the lessor depreciates the asset, you are able to treat the payments as an expense for federal tax purposes. As a direct benefit to your business, a tax lease reduces your Alternative Minimum Tax (AMT) liability, and the resulting rates, due to the lessor taking the depreciation benefit.
Balloon Payment Structures
A balloon payment structure includes a large “balloon” or “put” payment at the end of a term note or equipment lease. This sizable final payment provides you with a buy-out option that gives you a longer amortization period under the financing structure. In the shorter term, your regular payments are much lower than average over the term of the note or lease.
Deferred Payment Options
A deferred payment option provides you with a 60-, 90- or 120-day payment deferral period typically at the forefront of the transaction. This allows your business to benefit from the leased or financed asset while matching that productivity with a deferred account payable.
Seasonal Payment Structures
If your business has a highly seasonal model, you need a lease or financing structure that appropriately aligns with the ebb and flow of your revenue. Seasonal payment structures offered by Capitol Leasing & Financing Service match your company’s seasonality to the cash outflow of the lease. This seasonal payment structure primarily benefits construction and retail-oriented businesses.
Sale Leaseback Programs
A sale leaseback transaction allows your business to generate value out of a previously purchased asset. Leasebacks provide your firm with increased cash flow and all the benefits associated with the chosen lease structure.
If you purchased a large amount of equipment over a previous six-month period or you own higher value collateral (such as manufacturing equipment), your business qualifies for a sale leaseback transaction.
If your business is less than two years old, then you could qualify for startup financing. Capitol Leasing & Financing Service most often coordinates startup funds for equipment, construction or permanent financing.
No matter where your company is in the business lifecycle, CLFS has the equipment financing programs to help your business grow. Not sure which programs best fit your business? Click below to contact us or call 1-888-783-5327 to receive expert guidance from one of our financial professionals.