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| WHY SHOULD CUSTOMERS LEASE? |
| Ø Leasing Conserves Capital |
| * Leasing allows your customers to retain capital for investment rather than tying it up in fixed assets. Profits from the investments can offset the cost of the lease. |
| * Leasing is an additional source of credit for present and future needs. |
| Ø Leasing Applies to Products as well as their Related Services |
| * All costs including installations, service, shipping, maintenance and training can be included in a low monthly payment. |
| Ø Leasing Provides Tax Advantages |
| * Depending on the structure of the lease, your customers may write off the entire monthly payment as an operating expense or capitalize the outlay. |
| * The interest portion on a finance lease is tax deductible. |
| WHY SHOULD CUSTOMERS LEASE? |
| Ø Leasing Enhances Budget Stability |
| Leasing guarantees a fixed payment amount for the length of the lease term, making it easier for your customers to forecast expenses. o Leasing allows business to obtain equipment they could not have anticipated since their operating budget (vs. capital budget) can accommodate a monthly payment. |
| Ø Leasing Helps Avoid Technological Obsolescence |
| * Leasing protects your customers from being locked into owning equipment that may not meet their future needs. |
| Ø Leasing Provides Flexibility |
| * With the flexible and-of-lease options, your customer may purchase, refinance or upgrade at the end of the lease term. |
TYPES OF LEASES |
| Capital Lease |
| A “capital lease” is classified and accounted for by the lessee as a purchase. It is classified and accounted for by lessor as a sale if the transaction meets any one of the criteria established by FASB-23. A capital lease generally represents ownership to the lessee. A common capital lease is a $1.00 purchase option lease or conditional sales contract. |
| Operating Lease |
| An “operating lease” is a non-ownership lease form the standpoint of the lessee. This type of lease is structured to provide the lessee to maximize utilization and productivity, while avoiding the cost associated with obsolescence. The lease transaction must qualify under the criteria established by FASB-23 to be treated as an “operating lease” for accounting purposes. |
| FASB-23 |
| The Financial Accounting Standard Boards states that an if any one of the following scenarios are met the lease must be treated as a “capital lease”. |
| * The lease automatically transfers ownership of the property to the lessee by the end of the lease. (Ex. -$1.00 purchase options) |
| *The lease contains a bargain purchase option. (Ex. -20% purchase option) |
| *The lease terms are greater than 75% of the economic life of the property. |
| *The present value of the minimum lease payments at the beginning of the lease terms exceeds 90% of the fair market value of the property. (Payment times Term < 90% of Value) |
PAYMENT SCHEDULES |
| Level Payment Program |
| Monthly payments that are equal in dollar amount throughout the term of the contract. |
| Accelerated Payment Program |
| Monthly payments that are high during the first year and decrease annually over the life of the contract. Provides interest dollar savings to lessee, provides lessee with faster buildup of equity during strong economic periods, may satisfy financial vendors in cases of weaker credits or new business and balances monthly payments with maintenance. |
| Skip Payment Program |
| Payments that are structured to accommodate cyclical business conditions synchronizing payments with income. |
| Balloon Payment Program |
| A payment schedule that incorporates a final payment due at contract expiration that is generally derived as a percentage of the original finance amount. This type of payment structure provides lower monthly payments throughout the contract term than a level payment structure, however, higher overall interest cost and the pending balloon payment must be considered. |