“Leasing has clearly gained popularity in small firms… it is so much easier than going to a bank.” – The Wall Street Journal
Due to the varied nature of the cash flows of our customers, we specialize in providing payment schedule options tailored to our customers needs. In addition to standard payment options…monthly, quarterly, semi-annual, and annual, we offer a number of ways to structure a lease.
In all cases, the term is best determined by two factors… (1) the item to be leased and its projected longevity, and (2) the cash flow and tax needs of the customer.
Below we list and describe some of those options. We can work with you to develop one of these options that will be best suited to your needs. And if one of these isn’t what you need, we’ll custom tailor one for you!
- Equal Payments – Monthly
The majority of our customers find this option the most attractive. - Equal Payments – Not Monthly
These can be annual, semi-annual, quarterly or other seasonal payments - Step Down
This plan allows you to gradually decrease your payments over the term of the lease. The reasons to utilize this plan are numerous:- Lessees in higher tax brackets can maximize their tax savings NOW with a Step Down schedule. The accelerated rental schedule provides greater operating expense deductions in the early years of the lease.
- Reduced leasing costs over standard leasing programs. Because the payment schedule is accelerated, the total cost is also less.
- High projected maintenance costs as the equipment ages. Under this scenario, the Step Down lease has the effect of leveling the cash flows incurred from the asset. As the maintenance costs increase, the lease payments decrease.
- Step Up
This plan is the opposite of the Step Down above, the payments increase over the term of the lease. Why would you choose this plan? The proposed asset will generate ever increasing cash flows over the term it is in service. Large payments at the start of the lease could have the effect of draining cash flow. Thus, the payment matches the cash flow over the whole term of the lease. - Skip Payment Plan (Monthly)
Many customers receive their income on a seasonal basis (loggers and landscapers would be good examples). For them, we can modify the standard monthly schedule so that between 6 and 11 monthly payments are scheduled each year. Our customers tell us what months their cash flow can handle a payment. We then set up a schedule and the appropriate size payments accordingly. - Flex Month Plan
A variation of the Skip Payment plan. Rather than the “all or nothing” approach of the Skip Payment plan, the monthly payment during periods of lower cash flow is simply lowered to a level more easily handled and consequently increased during months of greater cash flow. - Seasonal Plan
Many customers, particularly crop farmers, acquire equipment at the beginning or middle of the season when they have little to no cash flow. For them, we can set up a schedule with a minimal advance payment taken at lease signing, and with the remainder received later in the year when cash flow from the crop or product is realized. - Lease Purchase or Renewal
Some of our customers elect to purchase their leased equipment from us at the end of the lease term.Others may elect to renew the lease for additional one-year terms. They retain the option to purchase or return the asset at the end of the lease renewal term.
Custom Tailored
Didn’t find one of the plans above that fit your needs? We often combine two of the plans for our customers; e.g., annual step down. Our representatives are empowered to be as creative as their customers needs. Working together, you will be able to develop a lease payment schedule acceptable to your needs. The space we have here could not begin to describe the payment plans we have developed over the years for our customers.
Most Common “End of Lease” Options
$1.00 BUY OUT
Also known as a capital lease and finance lease, $1.00 buy out is the closest option to straight bank financing. The lessee fulfills payment requirements for the duration of the lease, and once final payment is made along with $1.00, he/she becomes owner of the equipment.
Additionally, equipment must be shown as an asset and depreciated. It is not recommended that the equipment be written off as a rental expense. This simple option requires no further obligation, but one might keep in mind the monthly payments are slightly higher than an operating lease.
FAIR MARKET VALUE
Also known as an operating lease, this option may be tax deductible under IRS guidelines and payments can be written off. The equipment can be purchased at the end of the lease for its current fair market value (an estimated 10%) or the lessee can return the equipment with no further obligations.
10% PUT or PURCHASE OPTION
Also considered a combination of the capital and operating leases, this option can be 10%, 15%, or 20%. The lessee has the option to pay a predetermined percent of the original equipment cost at the end of the lease, or walk away. By leaving a residual at the end of the lease, the monthly payments are lowered. Tax benefits can also be taken advantage of.
We can help create a lease program that works for your business. Please contact us at 1-888-916-5200 or complete our request form.