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Equipment Leasing FAQs

Q: Why is leasing equipment better than buying it?
A: There are many reasons. Here are just a few:

• Leasing is flexible
  Companies have different needs. When you lease equipment, your exact business conditions — such as cash flow, specific equipment needs, and tax situation – will help define the terms of your lease.


• Leasing is practical
  By leasing, you transfer the uncertainties and risks of equipment ownership to the lessor, in turn allowing you to concentrate on using that equipment as a productive part of your business.


• Leasing is cost effective
  Equipment is costly, and some of the costs are unexpected. When you lease, your risk of getting caught with obsolete equipment is lower because you can upgrade or add equipment to best meet your needs.


• Leasing has tax advantages
  Rather than deal with depreciation schedules and Alternative Minimum Tax (AMT) problems you simply make the lease payment and deduct 100% of it as a business expense.


• Leasing helps conserve operating capital
  Leasing keeps your lines of credit open. You don't tie up your cash in equity. Also, you avoid costly down payments. As a lease is not on your balance sheet, it helps you better manage your balance sheet for your bank or senior lender.

Q: What kinds of companies lease equipment?
A: Lessees vary widely from small, one-person operations to Fortune 100 corporations, and the kinds of equipment being leased are just as diverse.

Transactions range from a few thousand dollars worth of equipment (such as a single fax machine) to multi-million-dollar cogeneration facilities, telecommunications systems, medical equipment (including CAT scanners and MRI imaging), construction equipment, office systems, computers, commercial airliners, and transportation fleets. In 1999, a reported $226 billion worth of equipment was leased.

Q: Are there different types of leases?
A: Yes. The type of equipment you want to lease, the term, and whether you want to keep the equipment at the end of the term will all be factors in determining what type of lease you need. The two most common types of leases are operating leases and finance leases.

With an operating lease, the term is shorter than the expected useful life of the equipment. Rental payments do not cover the equipment cost for the lessor during the initial lease term. This type of lease is popular for high-tech equipment, because shorter-term leases help equipment users stay ahead of equipment obsolescence.

With a finance lease, the term is longer, more nearly covering the useful life of the equipment. Rentals tend to be lower because of the longer term and reduced residual risk. From an accounting standpoint, an operating lease is the simplest type of lease because you only expense the rental payments; there is no requirement to add the asset to the balance sheet, as long as the footnotes to the financial statements indicate the amount of your firm's lease-rental obligations.

Another lease you might be interested in is the sale-leaseback. With this lease, you purchase the equipment you need and use it for a period of time before selling it to a lessor. After selling the equipment, you then lease the equipment, providing another way to free up your operating capital.

Q: How Does Leasing Work?
A: There are three ways you can acquire equipment through leasing:

1. You can select and order the equipment and then seek financing through a leasing company.
2. You can select the equipment by working with a vendor or a manufacturer who offers leasing through its own subsidiary.
3. You can obtain the equipment directly through a leasing company.

In most cases, you will select and order your equipment before contacting us. Once we have agreed upon terms and monthly payments, you sign the lease, which transfers purchasing rights to us, and we purchase the equipment. It is then delivered to you, and, after making sure all your specifications have been met, you formally accept it. We pay for the equipment and the lease takes effect.

Q: How can leasing help by business financially?
A: For one thing, leasing allows you to keep your existing bank lines of credit open. In addition, since leasing companies assume there will be a residual value in the equipment at the end of the lease, they can offer lower rental payments that will save you money. Finally, some types of term debt can negatively effect your company's future financial structure; but leasing does not. Under many lease agreements the Financial Accounting Standards Board (FASB) considers lease rental payments as an expense, not a debt.

Another key advantage of leasing is that it permits 100 percent financing, and the term of the lease can be matched with the useful life of the equipment. Therefore, if cash flow is a problem, leasing can help your company avoid down payments and keep scheduled payments low by stretching out repayment terms. Moreover, as your business grows, bank lines of credit and your own cash are still available to support increases in your company's working-capital requirements.