Equipment Acquisition Finance Options

There are nine methods to acquire your next piece of equipment. You may need a variety of equipment such as construction equipment, forklifts, portable power generators and light towers, track mobiles, and industrial burden / personnel carriers. That much you know, but the trick is what financial method should you use to make the acquisition and get that equipment working for you so you can operate at the level of excellence your customers expect. Making the right choice on how to finance your equipment can make the difference between your organization struggling and being recognized by your customers as a supplier of distinction. Let’s review your options. Your clear understanding of your choices will make it easy to decide which method is right for you.

 

  1. Outright Purchase Sale
      1. Comments – It doesn’t get any easier than handing over your check, cash or your credit card. If this piece of equipment is all you need for a while and you have plenty of cash, go for it.
      2. Ownership option – Yes, you pay for it and you own it right away.
      3. Purchase option amount – The Selling Price is your one option.
      4. Term (in months) – Cash on Delivery or Down Payment Required
      5. Is The Budget Advantage Lease available? (No Payment for 90 Days) – No
      6. Can this method be used for New or Used equipment acquisitions? – Yes
      7. Maintenance agreement – Optional
      8. Off Balance Sheet financing – No, Asset goes on balance sheet and cash is reduced.
      9. Lessee (User) entitled to depreciation – Yes, buyer gets to take depreciation expense.
      10. Equipment subject to return condition charges – No return implied in this transaction
      11. Document fees apply – No.
      12. Is this the lowest monthly payment option? – No
      13. Does this method eliminate future equipment disposal issues? No, when you do not want equipment anymore you have the responsibility to sell it, trade it in or junk it.
      14. Will you need to supply a Certificate of Insurance? – No
      15. When dealing with a new supplier or a new contract will you need to supply a credit application and W-9 form? – Yes
        1. When a business pays an independent contractor $600 or more over the course of a tax year, it is required to report these payments to the IRS on an information return called form 1099-MISC. Businesses use the name, address and Social Security or tax identification number from form W-9 to complete form 1099-MISC.
      16. Will freight charges from factory to you and/or local delivery charges be passed on to you? – Yes
      17. Will end of lease transportation charges apply to you? – No.
      18. Will You be required to sign UCC-1 filings? – No.
        1. A UCC-1 financing statement (Uniform Commercial Code) is a legal form that a lender files to give notice that it has an interest in the property of a debtor. This form is filed to “perfect” a creditor’s security interest by giving public notice that there is a right to take possession of and sell certain assets for repayment of a specific debt with a certain priority. Once the form has been filed, the creditor establishes a relative priority with other creditors of the debtor. This process is also called “perfecting the security interest” in the property, and this type of loan is a secured loan.
      19. Asset ownership – when does ownership of equipment transfer? – As soon as payment clears sellers bank.
      20. Lease / Rental terms available – None.
      21. Lease rental payment requirements – Not Applicable.
      22. Sample calculation –

 

Total Sale Price                      $20,000.00

Cash Payment                         $18,500.00

Freight & Local                      $     900.00

Trade-in Allowance                $ 1,500.00

Sales Tax at 8.75%                 $ 1,828.75

TOTAL you will pay                $21,228.75 plus Trade-In

 

 

2) Freedom Advantage Plus Lease

  1. Comments – High-Low Lease is a rental structure in which the lease payments are reduced from a higher to a lower rate at a prescribed point in the lease term.
  2. Ownership option – Use-Only Plan
  3. Purchase option amount – FMV – Fair Market Value
  4. Term (in months) – 36 with option to extent to 60
  5. Is The Budget Advantage Lease available? (No Payment for 90 Days) – Yes
  6. Can this method be used for New or Used equipment acquisitions? – New Only
  7. Maintenance agreement – Optional
  8. Off Balance Sheet financing – Yes
  9. Lessee (User) entitled to depreciation – No
  10. Equipment subject to return condition charges – Yes
  11. Document fees apply – Yes
  12. Is this the lowest monthly payment option? – No
  13. Does this method eliminate future equipment disposal issues? Yes
  14. Will you need to supply a Certificate of Insurance? – Yes, with Lessor Named as Additional Insured
  15. When dealing with a new supplier or a new contract will you need to supply a credit application and W-9 form? – Yes
    1. When a business pays an independent contractor $600 or more over the course of a tax year, it is required to report these payments to the IRS on an information return called form 1099-MISC. Businesses use the name, address and Social Security or tax identification number from form W-9 to complete form 1099-MISC.
  16. Will freight charges from factory to you and/or local delivery charges be passed on to you? – Yes
  17. Will end of lease transportation charges apply to you? – Yes
  18. Will You be required to sign UCC-1 filings? – Yes
    1. A UCC-1 financing statement (Uniform Commercial Code) is a legal form that a lender files to give notice that it has an interest in the property of a debtor. This form is filed to “perfect” a creditor’s security interest by giving public notice that there is a right to take possession of and sell certain assets for repayment of a specific debt with a certain priority. Once the form has been filed, the creditor establishes a relative priority with other creditors of the debtor. This process is also called “perfecting the security interest” in the property, and this type of loan is a secured loan.
  19. Asset ownership – when does ownership of equipment transfer? – Ownership is retained by the lessor during and after completion of the lease.
  20. Lease / Rental terms available – 36 with option to extend to 60 months
  21. Lease rental payment requirements – Refer to your contract
  22. Sample calculation –

 

 

 

Total Sale Price                      $20,000.00

Document Fee                         $     200.00

Freight & Local                      $     900.00

Trade-in Allowance                $ 1,500.00

Pre-Tax Check Amt on Del     $ 1,100.00

Sales Tax                                 $    227.50

Check on Delivery                   $ 1,327.50 ((Not including Advance Mo. Pymts)

Financed Amount                   $18,500.00

# of Months                                         36

            Before Extension                    

Interest Rate                                        4.5%

# of Advance Payments                       0         

Monthly Payment

   Principle&Interst      $333.93

   Sales Tax 8.75%      $ 29.22

                        TOTAL            $ 363.14

Sub-TOTAL you will pay                    $14,400.66 plus Trade-In

 

# of Months                                         24

            After Extension                       

Interest Rate                                        4.5%

# of Advance Payments                       0         

Monthly Payment

   Principle & Interest $313.60

   Sales Tax 8.75%      $ 27.44

                        TOTAL            $     341.44

TOTAL you will pay                $22,585.70 plus Trade-In

 

 

 

3) True Lease

    1. Comments – True Lease – Operating Lease – Tax Lease = Tax motivated, i.e. the lessee can claim the rental payments as a tax deduction and the lessor can claim tax benefits accrued to owners of the property. Multi-year lease arrangement in which the risks and rewards of Ownership are retained by the owner (the lessor) of the leased equipment, whereas the lessee retains its possession and use for the lease period. The lessor claims the depreciation benefits and the lessee claims the lease payments as capital expense. Called ‘true’ because they pass the accounting requirements for the lessor to claim the tax benefits, such leases offer comparatively lower lease payment. Also, called tax lease or tax oriented lease or operating lease.
    2. Ownership option – Use-Only Plan
    3. Purchase option amount – FMV – Fair Market Value
    4. Term (in months) – 12-72
    5. Is The Budget Advantage Lease available? (No Payment for 90 Days) – Yes
    6. Can this method be used for New or Used equipment acquisitions? – New Only
    7. Maintenance agreement – Optional
    8. Off Balance Sheet financing – Yes
    9. Lessee (User) entitled to depreciation – No
    10. Equipment subject to return condition charges – Yes
    11. Document fees apply – Yes
    12. Is this the lowest monthly payment option? – Yes
    13. Does this method eliminate future equipment disposal issues? Yes
    14. Will you need to supply a Certificate of Insurance? – Yes, with Lessor Named as Additional Insured
    15. When dealing with a new supplier or a new contract will you need to supply a credit application and W-9 form? – Yes
      1. When a business pays an independent contractor $600 or more over the course of a tax year, it is required to report these payments to the IRS on an information return called form 1099-MISC. Businesses use the name, address and Social Security or tax identification number from form W-9 to complete form 1099-MISC.
    16. Will freight charges from factory to you and/or local delivery charges be passed on to you? – Yes
    17. Will end of lease transportation charges apply to you? – Yes
    18. Will You be required to sign UCC-1 filings? – Yes
      1. A UCC-1 financing statement (Uniform Commercial Code) is a legal form that a lender files to give notice that it has an interest in the property of a debtor. This form is filed to “perfect” a creditor’s security interest by giving public notice that there is a right to take possession of and sell certain assets for repayment of a specific debt with a certain priority. Once the form has been filed, the creditor establishes a relative priority with other creditors of the debtor. This process is also called “perfecting the security interest” in the property, and this type of loan is a secured loan.
    19. Asset ownership – when does ownership of equipment transfer? – Ownership is retained by the lessor during and after completion of the lease.
    20. Lease / Rental terms available – Must be less than 75% of the estimated economic life of the equipment.
    21. Lease rental payment requirements – The accumulated rental payments must be less than 90% of the equipment’s fair market value (FMV). Referred to as non-payout lease
    22. Sample calculation –

 

Total Sale Price                      $20,000.00

Document Fee                         $     200.00

Freight & Local                      $     900.00

Trade-in Allowance                $ 1,500.00

Pre-Tax Check Amt on Del     $ 1,100.00

Sales Tax                                 $     227.50

Check on Delivery                   $ 1,327.50 ((Not including Advance Mo. Pymts)

Financed Amount                   $18,500.00

# of Months                                         60

Interest Rate                                        4.5%

# of Advance Payments                       2         

Monthly Payment

   Principle & Interest $287.68

   Sales Tax 8.75%      $ 25.17

                        TOTAL            $   312.85

TOTAL you will pay                $20,098.29

4) S.M.A.R.T. Lease with Maintenance

  1. Comments – This lease is a True lease with a fixed cost for full maintenance included in monthly payment. Avoidable damage is still chargeable to the equipment user.
  2. Ownership option – Use-Only Plan
  3. Purchase Option Amount – FMV – Fair Market Value
  4. Term (in months) – 12-72
  5. Is The Budget Advantage Lease available? (No Payment for 90 Days) – Yes
  6. Can this method be used for New or Used equipment acquisitions? – New Only
  7. Maintenance agreement – Included
  8. Off Balance Sheet financing – Yes
  9. Lessee (User) entitled to depreciation – No
  10. Equipment subject to return condition charges – Yes
  11. Document fees apply – Yes
  12. Is this the lowest monthly payment option? – No
  13. Does this method eliminate future equipment disposal issues? Yes
  14. Will you need to supply a Certificate of Insurance? – Yes, with Lessor Named as Additional Insured
  15. When dealing with a new supplier or a new contract will you need to supply a credit application and W-9 form? – Yes
    1. When a business pays an independent contractor $600 or more over the course of a tax year, it is required to report these payments to the IRS on an information return called form 1099-MISC. Businesses use the name, address and Social Security or tax identification number from form W-9 to complete form 1099-MISC.
  16. Will freight charges from factory to you and/or local delivery charges be passed on to you? – Yes
  17. Will end of lease transportation charges apply to you? – Yes
  18. Will You be required to sign UCC-1 filings? – Yes
    1. A UCC-1 financing statement (Uniform Commercial Code) is a legal form that a lender files to give notice that it has an interest in the property of a debtor. This form is filed to “perfect” a creditor’s security interest by giving public notice that there is a right to take possession of and sell certain assets for repayment of a specific debt with a certain priority. Once the form has been filed, the creditor establishes a relative priority with other creditors of the debtor. This process is also called “perfecting the security interest” in the property, and this type of loan is a secured loan.
  19. Asset ownership – when does ownership of equipment transfer? – Ownership is retained by the lessor during and after completion of the lease.
  20. Lease / Rental terms available – Must be less than 75% of the estimated economic life of the equipment.
  21. Lease rental payment requirements – The accumulated rental payments (not including maintenance portion) must be less than 90% of the equipment’s fair market value (FMV). Referred to as non-payout lease.
  22. Sample calculation –

Total Sale Price                      $20,000.00

Document Fee                         $     200.00

Freight & Local                      $     900.00

Trade-in Allowance                $ 1,500.00

Pre-Tax Check Amt on Del     $ 1,100.00

Sales Tax                                 $     227.50

Check on Delivery                   $ 1,327.50 ((Not including Advance Mo. Pymts)

Financed Amount                   $18,500.00

# of Months                                         60

Interest Rate                                        4.5%

# of Advance Payments                       2         

Monthly Payment

   Principle & Interest $287.68

   Sales Tax 8.75%      $ 25.17

   Maintenance Fee     $250.00

                        TOTAL            $     562.85

TOTAL you will pay                $35,098.29

5) Full Pay Out Lease

  1. Comments – Lease with $1 Purchase Option – Full Payout – Financial Lease – Nontrue Lease – Financing Lease – Capital Lease – Conditional Sale Contract (a.k.a. security agreement)
  2. Ownership Option – Yes
  3. Purchase Option Amount – $1.00
  4. Term (in months) – 12-72
  5. Is The Budget Advantage Lease available? (No Payment for 90 Days) – Yes
  6. Can this method be used for New or Used equipment acquisitions? – Both
  7. Maintenance agreement – Optional
  8. Off Balance Sheet financing – No
  9. Lessee (User) entitled to depreciation – Yes
  10. Equipment subject to return condition charges – No
  11. Document fees apply – Yes
  12. Is this the lowest monthly payment option? – No
  13. Does this method eliminate future equipment disposal issues? No
  14. Will you need to supply a Certificate of Insurance? – Yes, with Lessor Named as Additional Insured
  15. When dealing with a new supplier or a new contract will you need to supply a credit application and W-9 form? – Yes
    1. When a business pays an independent contractor $600 or more over the course of a tax year, it is required to report these payments to the IRS on an information return called form 1099-MISC. Businesses use the name, address and Social Security or tax identification number from form W-9 to complete form 1099-MISC.
  16. Will freight charges from factory to you and/or local delivery charges be passed on to you? – Yes
  17. Will end of lease transportation charges apply to you? – No
  18. Will You be required to sign UCC-1 filings? – Yes
    1. A UCC-1 financing statement (Uniform Commercial Code) is a legal form that a lender files to give notice that it has an interest in the property of a debtor. This form is filed to “perfect” a creditor’s security interest by giving public notice that there is a right to take possession of and sell certain assets for repayment of a specific debt with a certain priority. Once the form has been filed, the creditor establishes a relative priority with other creditors of the debtor. This process is also called “perfecting the security interest” in the property, and this type of loan is a secured loan.
  19. Asset ownership – when does ownership of equipment transfer? – Ownership is retained by the lessor during the base lease period, but title passes automatically at the end of the lease term or the lease contains a purchase option.
  20. Lease / Rental terms available – Usually covers 75% or more of the economic life of the equipment.
  21. Lease rental payment requirements – The accumulated rental payments are sufficient (equal to 90% or more) for the lessor to recover the full cost of the equipment plus any return on the investment. Often defined as full payout.
  22. Sample calculation –

 

Total Sale Price                      $20,000.00

Document Fee                         $     200.00

Freight & Local                      $     900.00

Trade-in Allowance                $ 1,500.00

Pre-Tax Check Amt on Del     $ 1,100.00

Sales Tax                                 $     227.50

Check on Delivery                   $ 1,327.50 ((Not including Advance Mo. Pymts)

Financed Amount                   $18,500.00

# of Months                                         60

Interest Rate                                        4.5%

# of Advance Payments                       1         

Monthly Payment

   Principle & Interest $343.73

   Sales Tax 8.75%      $ 30.08

                        TOTAL            $     373.81

TOTAL you will pay                $23,755.88

6) Lease with Stated Purchase Option

  1. Comments – Lease with Stated Purchase Option – Balloon Payment (i.e. 20% of Sale Price) – A “lease purchase (or lease option)” is the abbreviated form of the appropriate term “lease with option to purchase.” Simply stated, a Lease-to-Purchase contract combines a basic lease contract with an option to purchase contract, which creates a Lease-to-Purchase contract. The 10% PUT lease is similar, except the 10% at the end is not an option. PUT means “Purchase Upon Termination”.
  2. Ownership Option – Yes
  3. Purchase option amount – Stated purchase option
  4. Term (in months) – 12-72
  5. Is The Budget Advantage Lease available? (No Payment for 90 Days) – Yes
  6. Can this method be used for New or Used equipment acquisitions? – New Only
  7. Maintenance agreement – Optional
  8. Off Balance Sheet financing – Yes or No depending on contract wording
  9. Lessee (User) entitled to depreciation – Yes or No depending on contract wording
  10. Equipment subject to return condition charges – Yes
  11. Document fees apply – Yes
  12. Is this the lowest monthly payment option? – No
  13. Does this method eliminate future equipment disposal issues? – No
  14. Will you need to supply a Certificate of Insurance? – Yes, with Lessor Named as Additional Insured
  15. When dealing with a new supplier or a new contract will you need to supply a credit application and W-9 form? – Yes
    1. When a business pays an independent contractor $600 or more over the course of a tax year, it is required to report these payments to the IRS on an information return called form 1099-MISC. Businesses use the name, address and Social Security or tax identification number from form W-9 to complete form 1099-MISC.
  16. Will freight charges from factory to you and/or local delivery charges be passed on to you? – Yes
  17. Will end of lease transportation charges apply to you? – No
  18. Will You be required to sign UCC-1 filings? – Yes
    1. A UCC-1 financing statement (Uniform Commercial Code) is a legal form that a lender files to give notice that it has an interest in the property of a debtor. This form is filed to “perfect” a creditor’s security interest by giving public notice that there is a right to take possession of and sell certain assets for repayment of a specific debt with a certain priority. Once the form has been filed, the creditor establishes a relative priority with other creditors of the debtor. This process is also called “perfecting the security interest” in the property, and this type of loan is a secured loan.
  19. Asset ownership – when does ownership of equipment transfer? – Ownership is retained by the lessor during and after completion of the lease, i.e. Upon payment of the balloon payment.
  20. Lease / Rental terms available – Must be less than 75% of the estimated economic life of the equipment.
  21. Lease rental payment requirements – The accumulated rental payments must be less than 90% of the equipment’s fair market value (FMV). Referred to as non-payout lease.
  22. Sample calculation –

 

Total Sale Price                      $20,000.00

Document Fee                         $     200.00

Freight & Local                      $     900.00

Trade-in Allowance                $ 1,500.00

Pre-Tax Check Amt on Del     $ 1,100.00

Sales Tax                                 $     227.50

Check on Delivery                   $ 1,327.50 ((Not including Advance Mo. Pymts)

Financed Amount                   $18,500.00

# of Months                                         60

Interest Rate                                        4.5%

# of Advance Payments                       2         

Monthly Payment

   Principle & Interest $301.37

   Sales Tax 8.75%      $ 26.37

                        TOTAL            $     327.73

Balloon Payment                    $ 3,000.00

TOTAL you will pay                $23,991.57

7) Long-term Rental Agreement

  1. Comments – The “LTR” Long-term Rental Agreement is similar to a S.M.A.R.T. Lease with Maintenance with three key differences. First, a LTR can be a term as short as 12 months whereas a S.M.A.R.T. Lease must be at least 24 months. Second, the LTR does not allow for the Budget Advantage (No Payment for 90 Days). And finally, the LTR can be applied to used or new equipment.
  2. Ownership option – Use-Only Plan
  3. Purchase option amount – FMV – Fair Market Value
  4. Term (in months) – 12-60
  5. Is The Budget Advantage Lease available? (No Payment for 90 Days) – No
  6. Can this method be used for New or Used equipment acquisitions? – Both
  7. Maintenance agreement – Included
  8. Off Balance Sheet financing – Yes
  9. Lessee (User) entitled to depreciation – No
  10. Equipment subject to return condition charges – Yes
  11. Document fees apply – Yes
  12. Is this the lowest monthly payment option? – No
  13. Does this method eliminate future equipment disposal issues? Yes
  14. Will you need to supply a Certificate of Insurance? – Yes, with Lessor Named as Additional Insured
  15. When dealing with a new supplier or a new contract will you need to supply a credit application and W-9 form? – Yes
    1. When a business pays an independent contractor $600 or more over the course of a tax year, it is required to report these payments to the IRS on an information return called form 1099-MISC. Businesses use the name, address and Social Security or tax identification number from form W-9 to complete form 1099-MISC.
  16. Will freight charges from factory to you and/or local delivery charges be passed on to you? – Yes
  17. Will end of lease transportation charges apply to you? – Yes
  18. Will You be required to sign UCC-1 filings? – Yes
    1. A UCC-1 financing statement (Uniform Commercial Code) is a legal form that a lender files to give notice that it has an interest in the property of a debtor. This form is filed to “perfect” a creditor’s security interest by giving public notice that there is a right to take possession of and sell certain assets for repayment of a specific debt with a certain priority. Once the form has been filed, the creditor establishes a relative priority with other creditors of the debtor. This process is also called “perfecting the security interest” in the property, and this type of loan is a secured loan.
  19. Asset ownership – when does ownership of equipment transfer? – Not Applicable
  20. Lease / Rental terms available – Not Applicable
  21. Lease rental payment requirements – Not Applicable
  22. Sample calculation –

 

 

 

Freight & Local                      $     400.00

Sales Tax                                 $       35.00

Check on Delivery                   $     435.00 ((Not including Advance Mo. Pymts)

# of Months                                         60

# of Advance Payments                       0         

Monthly Payment

   Rental Charge          $700.00

   Sales Tax 8.75%      $ 61.25

                        TOTAL            $     761.25

TOTAL you will pay                $46,110.00

8) Short-term Rental Agreement

  1. Comments – A rental agreement is a contract between the owner of a piece of equipment and a renter who desires to have temporary possession and usage of the equipment as distinguished from a lease which is more typically for a fixed term. As a minimum, the agreement identifies the parties, the equipment, the term of the rental, and the amount of rent for the term. There is typically an implied, explicit, or written rental agreement or contract involved to specify the terms of the rental, which are regulated and managed under contract law. The term of the lease is general stipulated at daily, weekly or month to month. The rental does not end until the user returns the equipment or gives the rental supplier adequate notice of the day the user expects to end the rent and have the equipment picked up by the supplier for a pickup charge.
  2. Ownership option – Use-Only Plan
  3. Purchase option amount – FMV Fair Market Value
  4. Term (in months) – Month-to-Month
  5. Is The Budget Advantage Lease available? (No Payment for 90 Days) – No
  6. Can this method be used for New or Used equipment acquisitions? – Used Only
  7. Maintenance agreement – Included
  8. Off Balance Sheet financing – Yes
  9. Lessee (User) entitled to depreciation – No
  10. Equipment subject to return condition charges – Yes
  11. Document fees apply – No
  12. Is this the lowest monthly payment option? – No
  13. Does this method eliminate future equipment disposal issues? Yes
  14. Will you need to supply a Certificate of Insurance? – Yes
  15. When dealing with a new supplier or a new contract will you need to supply a credit application and W-9 form? – Yes
    1. When a business pays an independent contractor $600 or more over the course of a tax year, it is required to report these payments to the IRS on an information return called form 1099-MISC. Businesses use the name, address and Social Security or tax identification number from form W-9 to complete form 1099-MISC.
  16. Will freight charges from factory to you and/or local delivery charges be passed on to you? – Yes
  17. Will end of lease transportation charges apply to you? – Yes
  18. Will You be required to sign UCC-1 filings? – No
    1. A UCC-1 financing statement (Uniform Commercial Code) is a legal form that a lender files to give notice that it has an interest in the property of a debtor. This form is filed to “perfect” a creditor’s security interest by giving public notice that there is a right to take possession of and sell certain assets for repayment of a specific debt with a certain priority. Once the form has been filed, the creditor establishes a relative priority with other creditors of the debtor. This process is also called “perfecting the security interest” in the property, and this type of loan is a secured loan.
  19. Asset ownership – when does ownership of equipment transfer? – Not Applicable
  20. Lease / Rental terms available – Not Applicable
  21. Lease rental payment requirements – Not Applicable
  22. Sample calculation –

Freight & Local                      $     400.00

Sales Tax                                 $       35.00

Check on Delivery                   $     435.00 ((Not including Advance Mo. Pymts)

# of Months                                         1

# of Advance Payments                       0         

Monthly Payment

   Rental Charge          $900.00

   Sales Tax 8.75%      $ 78.75

                        TOTAL            $     978.75

TOTAL you will pay                $   1,413.75

9) Rent-to-Own Agreement

    1. Comments “Rent-to-Own” also known as rental-purchase, is a type of legally documented transaction under which the equipment, such as forklifts, construction equipment, sweeper scrubbers and so on is rented in exchange for a monthly payment, with the option to purchase at some point during the agreement. Typically, the rental-purchase is defined as after a stated number of payments the equipment becomes the property of the renter. A rent-to-own transaction differs from a traditional lease, in that the renter can purchase the leased item at any time during the agreement (in a traditional lease the lessee has no such right), and the renter can terminate the agreement by simply returning the property.
    2. Ownership Option – Yes
    3. Purchase option amount – Stated Purchase Option
    4. Term (in months) – 6-24
    5. Is The Budget Advantage Lease available? (No Payment for 90 Days) – No
    6. Can this method be used for New or Used equipment acquisitions? – Used
    7. Maintenance agreement – Optional
    8. Off Balance Sheet financing – Yes
    9. Lessee (User) entitled to depreciation – No
    10. Equipment subject to return condition charges – Yes
    11. Document fees apply – Yes
    12. Is this the lowest monthly payment option? – No
    13. Does this method eliminate future equipment disposal issues? No
    14. Will you need to supply a Certificate of Insurance? – Yes, with Lessor Named as Additional Insured
    15. When dealing with a new supplier or a new contract will you need to supply a credit application and W-9 form? – Yes
      1. When a business pays an independent contractor $600 or more over the course of a tax year, it is required to report these payments to the IRS on an information return called form 1099-MISC. Businesses use the name, address and Social Security or tax identification number from form W-9 to complete form 1099-MISC.
    16. Will freight charges from factory to you and/or local delivery charges be passed on to you? – Yes
    17. Will end of lease transportation charges apply to you? – No
    18. Will You be required to sign UCC-1 filings? – Yes
      1. A UCC-1 financing statement (Uniform Commercial Code) is a legal form that a lender files to give notice that it has an interest in the property of a debtor. This form is filed to “perfect” a creditor’s security interest by giving public notice that there is a right to take possession of and sell certain assets for repayment of a specific debt with a certain priority. Once the form has been filed, the creditor establishes a relative priority with other creditors of the debtor. This process is also called “perfecting the security interest” in the property, and this type of loan is a secured loan.
    19. Asset ownership – when does ownership of equipment transfer? – This is defined in the –“Rent-to-Own” Agreement.
    20. Lease / Rental terms available – Not Applicable
    21. Lease rental payment requirements – Not Applicable
    22. Sample calculation –

Freight & Local                      $     400.00

Sales Tax                                 $       35.00

Check on Delivery                   $     435.00 ((Not including Advance Mo. Pymts)

# of Months                                         24

# of Advance Payments                       0         

Monthly Payment

   Rental Charge          $916.67

   Sales Tax 8.75%      $ 80.21

                        TOTAL            $     996.88

TOTAL you will pay                $24,360.00

 

Now you are familiar with the nine methods to acquire your next piece of equipment. You may need to know a few more terms before you proceed.

 

 Most leasing transactions require advance payments, i.e., two or more monthly payments are required before the start of the lease term to offset up front expenses.  If payments are made monthly, one advance payment will apply to the first month’s payment and any additional payments will be applied to lease payments due at the end of the lease.  Under certain leases’ structures, advance payments are payable only at the end of the lease period commonly referred to as “payment in arrears.”

 

The following service-related charges (if applicable) are often built into the monthly rental payment for equipment leases. If charged separately, they should be given a chance of selection in Other receipts. Please note that these service-related charges are not itemized in the Checklist.

∆ Attorney fees

∆ Administrative charges (e.g. advertising)

∆ Casualty occurrence fees

∆ Collection telephone charges

∆ Commitment fees

∆ Deal rewrite fees

∆ Debt costs and placement fees

∆ Documentation fees

∆ Equity placement fees

∆ Excess use charge

∆ Filing fees

∆ Late payment charges

∆ Liability waiver fee

∆ Non-utilization fees

∆ Pre-payment penalties

∆ Re-marketing fees

∆ Repossession fee

∆ Transaction fees

∆ Upgrade financing

 

The master lease is a continuing lease arrangement whereby additional equipment can be added from time to time under the basic terms and conditions without negotiating a new contract. The equipment lease document is set up in two parts.  The main body of the leasing agreement contains the general or boilerplate provisions such as maintenance and indemnification provisions. An annex or schedule contains the types of items that usually vary with each transaction such as the rental rates and the options. 

 

The operating lease is a short-term leasing arrangement, which is treated as a true lease for accounting purposes. The lessee can deduct the lease payments as operating expenses on its “Balance Sheets.” The lessor also agrees to provide additional equipment related services (other than financing) such as maintenance, repairs and technical advice. According to guidelines established by Financial Accounting Standards Board (FASB) 13, an operating lease must have all of the following characteristics: (1) the lease term must be less than 75 percent of the estimated economic life of the equipment, (2) the present value of the lease payment is less than 90 percent of the equipment’s fair market value; (3) the lease cannot contain a bargain purchase option (i.e., less than fair market value); (4) ownership is retained by the lessor during and after the completion of the lease term.

 

The capital lease is an equipment leasing arrangement which is considered a purchase by the lessee and is treated as a sale or financing transaction by the lessor, in accordance with the guidelines established by the Financial Accounting Standards Board (FASB) in FASB 13. This type of lease must meet one of the following criteria: (a) title passes automatically by the end of the lease term; (b) the lease contains an option to purchase the equipment at a bargain purchase option; (c) the lease term is greater than 75 percent of the estimated economic life of the equipment; or (d) the present value of the lease payments is greater than 90 percent of the equipment’s market value.

 

The leveraged lease is a form of the direct financing lease or a capital lease in which a large percentage of the funds (usually 70 percent to 80 percent) to purchase the equipment is loaned by a bank or some other financial lender. Since the lessor of the equipment provides only a small portion of the equipment’s cost, its investment is considered leveraged.  This type of lease must meet the definition criteria for a finance lease plus all the following characteristics: (a) there must be at least three parties involved in the equipment leasing transaction – a lessor, a lessee, and a long-term creditor; (b) the financing provided by the lessor is sufficient to cover the transaction without recourse to the lessor; and (c) the lessor’s net investment declines during the later years. 

 

Lessee – The user (lessee) of the equipment being leased who is obligated to pay the rentals to the asset owner (lessor) and who is entitled to use and possess the leased equipment during the lease term.

 

Lessor – The owner (lessor) of the equipment who has the legal or tax title to the equipment and who grants the lessee the right to use the equipment for the lease term. The lessor is entitled to receive the rental payments.

 

Now you are familiar with the nine methods (and a little more) to acquire your next piece of equipment.

Again, you may need a variety of equipment such as construction equipment, forklifts, portable power generators and light towers, track mobiles, and industrial burden / personnel carriers. That much you knew, and now you can pick the best financial acquisition method for you and your organization. Now, get that equipment working for you so you can operate at the level of excellence your customers expect. Making the right choice on how to finance your equipment can make the difference between your organization struggling and being recognized by your customers as a supplier of distinction.

 

Click here for more information on Forklift and Heavy Equipment Financing and Leasing.

 

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