Finance options can be classified as Lease Agreements
and as Equipment Finance Agreements (EFA). The EFA has the title of equipment with the borrower with the lender as secured
lien holder of equipment. The Borrower gets the depreication and interest expense. The Lease Agreement has various classifications
for use in different situations. Selecting the right option can optimize the use of capital as well have an impact on the
balance sheet. Equipment Funding Ltd. has the ability provide the financing that meets your needs. With over $200 Billion
dollars in leasing in 2002, it is important to explore an understand this options. A brief summary of type of Lease follows.
Operating Lease - a "off balance sheet" lease that contain criteria established by FASB(Financial
Accounting Standard Board) that allows the lease not to appear on the financial statement of the lesseee. Payments are accounted
as true rental payments. The criteria for qualifying are:
*Title of asset not automatically transfered to lessee at end
of lease term.
*No provsion for a bargain purchase option.
*Lease in non-cancelable for its term andd that term
is less than 75% of the economic life of the asset.
*The minimum lease payments when discounted by the interest rate
implicit in the lease is less than 90% of the asset's fair value.
Master Lease - generally used when a credit line
is obtained. It details the terms and conditions. It identifies the parties a involved and their responsibilities. Separate
schedules to the lease are prepared with selection of assets. The schedules outline the specific terms: payment, frequency
of payment, advance requirements and location of equipment.
Finance Lease - most common contract in the small
ticket market. It is a net lease, meaining the lessee is responsible for all applicable taxes, license and insurance. It
Capital Lease - a lease type that is treated as a purchase on the lessee's books. They are identified
by the following characteristics:
* The lease term is equip to or greater than 75% of the
useful life of the leased asset.
* Title to the asset may be obtained for a bargain option
at end of term or
* The presetn value of the lease payments are equal to
or greater than 90% of the
estimated fair market value
of acquired asset.
True Lease - a lease type that qualifies as a lease
under the guidelines established by the Internal Revenue Code.
Sales-Leaseback - is used when the asset that is owned
is sold to the lessor and then leased back to the lessee. It is usually used to obtain additional cash that is tied up in
the asset, or when other means of financing were not available at the initial acquisition. In most cases the lessee will
be responsible for inclusion of sales tax on this transaction.
Trac-Lease - is tax oriented and used exclusively transportation/vehicle
leases. TRAC derives its name from the contract clause "terminal rental adjustment". The residual value is adjusted based
on condition and usage of the vehicle.
Remember, select your equipment and your financing carefully. As with any
contract, you are committed for the entire term. By selecting Equipment Funding Ltd., you are selecting a partner that will
work for you.