Leasing and Financing for All Business Equipment
If you run a business, you need the tools of the trade to help your team operate. At Alternative Capital Source, we offer equipment leasing and financing options for all types of equipment. Whether you need computer software or manufacturing machines, we can help you better manage the purchase. Equipment is always a big investment, let us help you ensure your future success.
We can provide financing options for purchases and working capital. Talk to us about:
- Construction Equipment
- Transportation Vehicles, Trailers
- Healthcare Equipment
- Computer Equipment
Equipment Financing vs. Leasing
One of your first decisions is whether to lease or buy your equipment. Both options have their merits. When you choose Alternative Capital Source for equipment financing, you will enjoy fast approvals, rapid funding and simple applications. We don’t require financial statements on smaller items. Additionally, you will owe either no down payment or a low one.
Leasing offers some substantial advantages also. These are some of the reasons that many of our customers choose this option:
- Avoid using up cash or lines of credit
- No risk of obsolete equipment
- Low and easy-to-manage monthly payments
- Benefits for taxes and accounting
Equipment Financing & Leasing
We’re Ready to Assist You… 214-414-9090
Equipment and Transportation Loans:
- 70% to 95% Financing Available
- Competitive Interest Rates
- Terms from 5 to 10 years
Popular Leasing Programs:
$1 Buy Back
Flexible payment terms; You typically pay for all maintenance and insurance. At the end of the lease, ownership is transferred to you.
Similar to the $1 Buy Back, except the payments are lower, as the equipment purchase price at lease end is 10% of the original price.
Operating Lease (Traditional Lease)
Lower payment; option to extend the lease or buy that equipment at market value when the lease ends.
Lender buys your free & clear (or very low balance) equipment (usually at “auction value”) and leases it to you. Moves the asset off your balance sheet and the lease is fully deductible (like all equipment leases). You continue to maintain.
Over-the-Road trucks, tractors and trailers. Flexible terms and pricing.
We have aggressive lenders which work with FICO scores of 600+
Conservation of Capital
When capital is conserved by leasing equipment, it can be put to more profitable company uses (increasing inventories, expanding sales, etc.). The average return on capital for business is 18% AFTER taxes.
Conservation of Credit
A lease is not a loan. Borrowing reduces lines of credit. Leasing is thus a NEW credit source, which allows increased borrowing capacity.
Off Balance Sheet Financing
Leases may sometimes be treated as off balance sheet debt which can enhance financial ratios & borrowing capacity.
Structured leases can allow upgrade and trade-up options insuring the latest technology.
Lease payments can sometimes be treated as a direct expense, which allows the equipment to be paid for with pre-tax dollars. Traditional financing only allow expensing the interest costs & depreciation.
Leasing provides fixed rate financing with specifically structured terms to accommodate the needs of each and every company. These structured leases include step-up, step-down, deferred, and seasonal payment plans.
Contact Alternative Capital Source today. We are happy to help you get started with equipment leasing or financing.
USEFUL INDUSTRY DEFINITIONS:
A depreciation method, such as the Modified Accelerated Cost Recovery System (IRS tax depreciation), that allows write-offs more quickly than the straight-line method, which allows write-offs in equal increments as tax deductions in each tax year.
A transaction that adds related equipment to an existing lease. Typically, this term is used when the new equipment is financed using the same lease structure (i.e., Fair Market Value, $1.00 Purchase Option, Fixed Purchase Option, etc.) as was used in the underlying transaction except that the lease term for the add-on is set so that it expires coterminously with the original transaction.
A large, lump-sum payment scheduled at the end of a series of smaller periodic payments with respect to applicable loan and lease financing transactions.
Property used in business for a period of more than a year, including machinery, equipment and other significant property.
A lease accounting concept under Financial Accounting Standard No. 13 (FAS 13) and not a legal concept. Now known as a finance lease under ASC Topic 842. In accounting parlance, a lease should be classified and accounted for by a lessee as a financed purchase and by the finance company, or lessor, as a sale or financing, if it meets any one of the following criteria: (a) the lessor transfers ownership to the lessee at the end of the lease term; (b) the lease contains an option to purchase the asset at a bargain price; (c) the lease term is equal to 75 percent or more of the estimated economic life of the property (exceptions for used property leased toward the end of its useful life) or (d) the present value of minimum lease rental payments is equal to 90 percent or more of the fair market value of the leased asset. A lease that fails all of these criteria is an operating lease for accounting purposes.
Capped Fair Market Value Lease
A fair market value lease with a predetermined ceiling to limit fair market exposure at the end of the lease term.
Certificate of Acceptance
A document that serves as proof that goods have been delivered to and accepted by the customer.
The process of determining if a lease is an operating lease or a finance lease. A lessee shall classify a lease as a finance lease and the lessor will classify a lease as a direct finance lease if the lessee effectively obtains control of the underlying asset as a result of the lease. A lessee effectively obtains control of the underlying asset when the lease meets any of the following criteria at lease commencement:
- The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.
- The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise.
- The lease term is for the major part of the remaining economic life of the underlying asset.
- The sum of the present value of the lease payments and the present value of any residual value guaranteed by the lessee amounts to substantially all of the fair value of the underlying asset.
- The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.
When determining lease classification, one reasonable approach to assessing the criteria would be to conclude both of the following:
- Seventy-five percent or more of the remaining economic life of the underlying asset is a major part of the remaining economic life of that underlying asset.
- Ninety percent or more of the fair value of the underlying asset amounts to substantially all the fair value of the underlying asset.
Closed End Lease
A lease agreement that puts no obligation on the lessee to purchase the leased asset at the end of the agreement or guarantee its residual value. Also called an FMV lease as the customer can negotiate with the lessor to buy the asset or renew the lease at the then fair market values. This term is used in the vehicle leasing business, as opposed to “open end” leases.
Commencement Date of the Lease (Commencement Date)
The date on which a lessor makes an underlying asset available for use by a lessee. It is the point at which a lease must be recorded under ASC 842.
Conditional Sale (Time Sale)
An agreement in which the seller retains title to the equipment and transfers it to the buyer when all contractual payments have been made.
Conditional Sales Lease
A lease that is a disguised financing or conditional sale agreement. Although the document looks like a lease, it typically requires a substantial advance rent or down payment that may cause a court to treat the transaction as a secured loan. It is not a finance “lease” as defined in UCC Article 2A.
Two or more leases that are linked so that both will terminate at the same time.
A loan, deferred sale or lease which, in each case, refers to a sale in which the lessee (conditional buyer) takes possession of the equipment, but the lessor retains legal title to the equipment until the lessee makes the final lease or sale payment. After lessee makes the last payment, the lessor (conditional seller), without further payment, transfers title to the lessee (conditional buyer). Hence, the sale is conditioned on payment in full over a time period set at the inception of the transaction.
A clause in a contract, usually required by the finance company, that either requires the borrower to do a particular thing or refrain from doing a particular thing.
Financing an equipment dealer’s working capital and floor planning to get the retail lease and loan business when the dealer sells assets out of inventory. Leasing companies target dealers as a source of end user leases and loans. This concept is also sometimes referred to as “inventory finance”.
Delivery and Acceptance Certificate
A document that evidences the delivery and acceptance of a good, such as equipment, by the customer.
Direct Financing Lease
From the perspective of a lessor, a lease that meets none of the classification criteria as listed above (see Classification) and where lease payments are reasonably expected to be paid by the lessee and all the costs of the asset are known.
A certain interest rate that is used to bring a series of future cash flows to their present value in order to state them in current, or today’s, dollars. Use of a discount rate reflects the time value of money from future cash flows. A discount rate is used under ASC Topic 842 to present value lease payments to capitalize operating leases. Such discount rate is the lessee’s incremental borrowing rate or the lessor’s implicit rate, if known by the lessee (it is only known if the lessee knows the lessor’s residual which only occurs in synthetic leases or TRAC leases).
The purchase of equipment or other assets before the end of the applicable lease term.
Economic Life (Useful Life)
The period of time during which an asset will have economic value and be usable.
Effective Lease Rate
The effective rate (to the customer) of cash flows resulting from a finance transaction. To compare this rate on an after-tax basis as compared to a loan interest rate, a company must include in the cash flows any effect the transactions have on federal tax liabilities.
A document that describes in detail the equipment being leased, the financial terms and other terms, including the lease term, commencement date, repayment schedule and location of the equipment, as a supplement to the primary terms found in the related master lease. It is important to note that the Equipment Schedule is actually the “lease” (or chattel paper), rather than the Master Lease (which merely contains the base terms which are incorporated into separate Equipment Schedule(s)). Each Equipment Schedule is independent from the Master Agreement and all other Equipment Schedules.
Estimated Useful Life
The period during which an asset is expected to be useful in trade or business. Used for purposes of calculating the maximum allowable term of a tax lease, for determining whether or not the lease is classified as a Capital/Finance or Operating Lease, or to determine the method of depreciation for a capitalized leased asset. May or may not be the same as the life used for income tax purposes.
Fair Market Purchase Option
An option to purchase leased property at the end of the lease term at its then fair market value.
Fair Market Value
The price for which property can be sold in an “arms length” transaction between informed and willing parties, each of which is acting rationally and in its own best interest based on the assumption that the equipment or other capital asset is in a known or required condition.
Financial Accounting Standards No. 13 of the Financial Accounting Standards Board, which establishes standards for lessees’ and lessors’ accounting and reporting for leases. FAS 13 includes the characterization of a lease as an operating lease or capital lease for the lessee’s purposes. A company’s assets, liabilities and net income will differ depending on the classification of its leases based on their nature. The provisions of FAS 13 derive from the view that a lease that transfers substantially all of the benefits and risks of ownership should be accounted for as the acquisition of an asset and the incurrence of an obligation by the lessee (a capital lease) and as a sale or financing by the lessor. Other leases should be accounted for as the rental of property (operating leases). (FAS 13 is now known as Topic 840 and soon to be Topic 842 as a result of the project to codify all FASB accounting standards.)
A finance lease, in a business sense, is typically a full-payout, non-cancellable agreement in which the customer is responsible for maintenance, taxes and insurance. However, the term “finance lease” also refers in Article 2A of the Uniform Commercial Code (UCC) to a special type of “lease” in which the lessor, lessee and the manufacturer have contractual relationships and the lessor at all times, with the lessees acknowledgement, remains a passive investor where the lessee makes most equipment decisions directly with the manufacturer.
First Amendment Lease
A lease that provides the lessee with a purchase option at one or more defined points during the lease term. The customer must renew or continue the use of equipment under the lease if the purchase option is not exercised. The option price is usually either a fixed price intended to approximate fair market value, or is defined as fair market value, determined by the lessee’s appraisal, and subject to a price floor that insures the finance company’s residual position will be covered if the purchase option is exercised. If the purchase option is not exercised, then the lease is automatically renewed for a fixed term (typically 12 or 24 months) at a fixed rental intended to approximate fair rental value, which will further reduce the lessor’s end-of-term residual position. The lessee is not permitted to return the equipment on the option exercise date. If the lease is automatically renewed, then at the expiration of that initial renewal term, the lessee typically has the right either to return the equipment without penalty or to renew or purchase at fair market value.
Fiscal Funding Clause
A provision (also called a “non-appropriation” clause) by which the lease is cancelable if the legislature or other funding authority does not appropriate the funds necessary for the governmental unit to fulfill its obligations under the lease agreement beyond the current budget year.
Fixed Priced Purchase Option
An option given to the lessee to purchase leased equipment from the lessor on the option date for a certain price. Both the date and price must be determined at the inception of the lease. A fixed price purchase option could equal as little as 10-15 percent of the original cost of the equipment.
Full Payout Lease
A lease in which the finance company recovers, through the lease payments, all investment incurred in the lease transaction, plus an acceptable rate of return, without any reliance upon the future residual value of the equipment.
Incremental Borrowing Rate
The rate that, at the inception of the lease, the lessee would incur to borrow over a similar term the funds necessary to purchase the leased asset. In other words, the fixed interest rate a lessee would have to pay if, instead of leasing, the lessee finances the purchase of the same asset. Most lessees do not borrow fixed rate money so a proxy would be swapping the lessees revolver rate to fixed assuming the term of the lease.
A clause in which a lessee or borrower, and sometimes the financier, agrees in favor of the other party, to hold the other party harmless and free of liability for specified losses or damages incurred in the underlying transaction. As passive investors and lenders only, financiers typically obtain very broad indemnities from their customers to protect them against any loss, damage or liability associated with lending in respect of, or leasing, equipment or other capital asset. In Ethyl Corporation v. Daniel Construction Co., 725 S.W.2d 705 at 709 (Texas Sup. Ct. 1987), the court defined an indemnity agreement as a “collateral contract or assurance, by which one person engages to secure another against an anticipated loss or to prevent him from the legal consequences of an act or forbearance on the part of one of the parties or of some third person.” In other words, an indemnity agreement is a promise by one party, called the indemnitor, to safeguard or hold the protected party, called the indemnitee, harmless against existing and/or future loss, damage, and expense or injury liability.
Initial Direct Costs
Incremental costs of a lease that would not have been incurred if the lease had not been obtained. An example is sales person’s commission. Initial direct costs (IDC) are deferred and amortized over the lease term.
The agreed or stated value, or other appropriate value, of equipment or other capital assets after all exclusions, such as maintenance or service charges, that an insurance company will provide casualty or property insurance to cover losses or damage to the equipment or other capital asset.
A contract that includes an option for the lessee either to renew the lease at fair market rental value or to purchase the equipment for its fair market value at the end of the lease term. Fair market value exists when a willing buyer and a willing seller agree on rent or purchase price, respectively, assuming the equipment is in the condition required by the lease in which the option is granted. A lease may contain either or both options.
The transfer of a lease by a lessee to a third party. Many leases contain clauses that restrict or prohibit lease assignment. Certain restrictions on assignments may not be enforceable under the UCC.
A specific amount of funding arrangement designated by the lessor for a lessee to use over a fixed commitment period typically arranged under a master lease.
Lease payments to be capitalized
At the commencement date, the lease payments shall consist of the following payments relating to the use of the underlying asset during the lease term:
- Fixed payments
- Variable lease payments
- Fees paid by the lessee
Lease Purchase Contract
Full payout, net leases structured with a term equal to the equipment’s estimated useful life. Because many lease purchases include a bargain purchase option for the lessee to purchase the equipment for one dollar at the expiration of the lease, these leases are often referred to as dollar buyout or dollar-out leases. Lease purchases are generally considered to be capital leases from an accounting perspective and non-tax leases from a tax perspective due to their bargain purchase option and length of lease term.
The noncancellable period for which a lessee has the right to use an underlying asset, together with all of the following:
- Periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option
- Periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option
- Periods covered by an option to extend (or not to terminate) the lease in which exercise of the option is controlled by the lessor.
The party to a lease agreement who has legal, beneficial or tax title to the equipment, grants the lessee the right to use and possess the equipment for the lease term, and is entitled to the rentals.
A lease in which the lessor/finance company invests equity into a trust for the purchase of equipment or other capital asset, and borrows the balance from a non-recourse lender to make the purchase. For example, a lessor may invest 20 percent and borrow 80 percent to buy the equipment or other capital asset. The lessor/trust leases the asset to the lessee. The lender has recourse only to the rents and the leased asset.
A “master” agreement between a lessor and lessee which contains the base terms which are in turn incorporated into Equipment Schedules. The Master Lease is separate and independent from all Equipment Schedules. By using a Master Lease, the customer is able to acquire other equipment in the future under the same basic terms and conditions without negotiating a new lease contract. Typically, the customer signs a new schedule and related documents to add the new equipment.
A property lease in which the customer agrees to pay all expenses normally associated with ownership, such as taxes, maintenance and insurance.
A type of loan for which the sole payment source is the collateral or its cash flow; and the only remedy available to the lender in the event of default is to foreclose on the collateral. The borrower is not personally liable for repayment. This type of loan is most often seen in leveraged leases and in various loans made in respect of lease interests in equipment or other capital assets.
A lease that, due to application of the FAS 13 classification test, is an operating lease. The leased asset and lease obligation do not appear on balance sheets (“off-balance sheet”) of the lessee; rather, the cost of the lease is treated as an expense (rent expense). The lessee acquires the right to use the asset and pays for that right through rent paid over the lease term — hence the term “financing.”
A conditional sale lease (includes synthetic, TRAC and Split TRAC leases) in which the customer guarantees that the finance company will realize a minimum value from the sale of the asset at the end of the lease. This is a term used in vehicle leasing and means the lessees liability is “open” meaning unknown. See TRAC Lease.
A business concept (not the accounting concept under FAS 13) in which the lease lasts for short-term of use of equipment by the lessee. The finance company retains ownership of the equipment and expects the lessee to return the equipment at the end of a term of three to 10 years. The lessor realizes its return through higher rents and residual value, which usually requires and results from sales or re-leasing of the returned equipment. Additional services, such as maintenance and insurance, may be provided by the lessor.
Payment in Arrears
Payment made after the obligation arises and payment becomes due has been incurred by the debtor.
The current equivalent of payments or a stream of payments to be received at various times in the future. The present value will vary with the discount interest factor applied to future payments.
A provision by which a lessee has the right to purchase the equipment at the end of the lease. The purchase option may be stated at a specified amount, specified percentage, or at fair market value.
The requirement of a lessee to purchase equipment at a particular time and at a predetermined price. In a lease transaction, this is a lessor’s right to force the lessee (or some third party) to purchase the equipment at the end of the lease term. IRS guidelines prohibit put options in tax-oriented leases.
Rate Implicit in the Lease
The rate of interest that, at a given date, causes the aggregate present value of (a) the lease payments and (b) the residual value amount that a lessor expects to derive from the underlying asset following the end of the lease term to equal the sum of (1) the fair value of the underlying asset minus any related investment tax credit retained and expected to be realized by the lessor and (2) any deferred initial direct costs of the lessor. It is the internal rate of return in the lease.
An agreement with a vendor whereby the vendor will purchase or repurchase the lessor’s interest in a lease, usually upon demand, after default of the lessee. Generally, the lease must be in default and a reasonable amount of collection effort must be made by the lessor.
The value of an asset at the conclusion of a lease.
An arrangement whereby in a finance company purchases equipment from the business using the equipment. The finance company then becomes the equipment owner, and leases the equipment back to the original owner, which continues to use the equipment without disruption.
States impose sales taxes on retail sale transactions. States impose use taxes for tangible personal property that is used, consumed or stored in the state. See below for a definition of “Use Tax”.
A financial contract in which the rent may change during the term of the lease contract. The rent change is known at inception, and is agreed upon by the financing company and lessee. Often a step-up lease allows the lessee to pay less initially and more later in the term. A step down lease works in the reverse manner, allowing the lessee to pay more initially and less later as the payment amount decreases over the term of the lease contract. These contracts are sometimes referred to as a “low-high” and a “high-low” lease structure, respectively.
Stipulated Loss Value
A schedule included in a lease that states the agreed value of equipment at various times during the term of the lease and establishes the liability of the lessee to the lessor in the event that the leased equipment is lost or rendered unusable during the lease term due to a casualty loss.
Tax Lease or Guidelines Lease
Revenue Procedure 2001-28 (Rev. Proc. 2001-28) establishes criteria for classifying a lease as a true lease for federal income tax purposes. It is the successor to Revenue Procedure 75-21, 1975-1 C.B. 715 and other related revenue procedures. Technically, Rev. Proc. 2001-28 establishes criteria for obtaining an advance ruling from the Internal Revenue Service (IRS) that a lease is a “true lease” as contrasted with a conditional sale. It is also used to determine whether a simple lease between a lessor and a lessee is a “true lease” for tax purposes, which entitles the lessor to take tax benefits arising from the purchase and lease of equipment to the lessee.
Financing generally used for working capital, expansion, refinancing and acquisitions; repaid monthly or other agreed interval for a specified term.
A lease that contains a special provision called a “terminal rental adjustment clause.” TRAC leases apply to motor vehicles (including trailers) used more than 50 percent of the time in the trade or business of the lessee. Sometimes called an “open-end lease,” a TRAC lease requires the lessee to make an unknown (open-ended) payment to the lessor at the end of the lease term. This “terminal rent” payment makes up any shortfall due to the lessor if the lessor does not receive proceeds of a sale or other disposition of the vehicle sufficient to recover its investment plus its return on the investment. The transaction looks and works like a balloon loan because the lessor transfers all residual value risk to the lessee. The lessor realizes residual value either when the lessee exercises an option to purchase the asset at the end of the lease at a stipulated amount or when the lessor sells the asset to a third-party. If the disposition of the vehicle results in excess proceeds, the lessee generally retains the excess.
A lease is generally described in state law as a transfer of the right to possession and use of equipment for a stated term in return for some consideration as described in UCC Article 2A-103(1)(j). However, a true lease involves other considerations. Section 1-203 of the UCC provides guidelines to determine whether a transaction should be treated as a true lease or instead as a disguised security agreement. The guidelines require an objective analysis and are supposed to disregard the documents’ labels and the parties’ intent. .Current law focuses on the underlying economics of the transaction and the specific facts to determine whether the transaction is a lease or disguised financing.
Many states charge a “use” tax in lieu of a sales tax when equipment is leased. In practice, instead of paying a sales tax for purchase of the leased equipment, the lessor collects or lessees directly pay use taxes with respect to each rent period as a percentage of the rentals over the lease term.
The period of time during which an asset will have economic value and be usable. The useful life of an asset is sometimes called its economic life.
Variable Lease Payments
Payments made by a lessee to a lessor for the right to use an underlying asset that vary because of changes in facts or circumstances occurring after the commencement date, other than the passage of time. Common equipment lease variable payments are be based on changes in a rate or index, usage of the asset, and residual value.
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