Equipment Leases

Ownership of the asset is the cornerstone of a Capital Lease and Loan structure.

The Lessee or Buyer is the recognized owner of the asset listed on the balance sheet. Capital leases, finance leases, and loans are full-payout, non-cancelable agreements in which the Lessee is responsible for maintenance, taxes, and insurance, also known as a triple Net Lease. 
 The Lessee receives the depreciation benefits.

Capital leases and Loans are most attractive in cases where the lessee wants the tax benefits of ownership or expects the equipment’s residual value to be high. The Equipment is simply pledged as collateral, whereby the Lessor files a UCC or security interest. The term of a finance lease tends to be two (2) to seven (7) years.

This type of lease is classified and accounted for by a lessee as a purchase and by the 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 less related investment tax credits retained by the lessor.

Capital leases are also classified as Nontax Leases by the IRS.

A Traditional Loan is a full-payout, non-cancelable agreement documented with a note and security agreement and is used to finance the purchase of business equipment. In most cases, the equipment itself is all the collateral needed. With loan financing, you own the equipment and receive the tax benefits of depreciation and interest deduction.

One benefit of a Loan is the borrower’s ability to choose between a fixed interest rate for the term of the loan or a floating rental rate with an index such as commercial paper. Further, the Borrower enjoys the benefits of ownership and the future flexibility to utilize accrued equity to leverage working capital when needed. A loan typically requires a down payment; the monthly payments are fixed.

Temporary use and non-ownership of the asset by the Lessee are the cornerstone attributes of an Operating lease or Rental agreement. In essence, the Lessee enjoys use of the equipment for some period before returning or purchasing the asset at the end of the initial agreement.

An operating lease is particularly attractive to companies that continually update or replace equipment and want to use equipment without ownership but also want to return equipment at lease-end and avoid technological obsolescence. An operating lease usually results in the lowest payment of any financing alternative and is an excellent strategy for bypassing capital budgeting restraints. It typically qualifies for off-balance sheet treatment and can result in improved Return On assets (ROA) due to a lower asset base. It can also result in higher reported earnings in the early years of the lease.

The Lessor recognizes the tax incentives provided by the tax laws for investment and ownership of equipment. It allows the lessor to claim ownership and the lessee to claim rental payments as tax deductions. Generally, the lease rate factor on tax leases is reduced to reflect the lessor’s recognition of this tax incentive. This type of transaction qualifies as a lease under the Internal Revenue Code.

A rental is essentially an Operation or Tax Lease whereby the term of the transaction is less than 12 months. Rental Agreements provide the user with short-term utilization of the equipment and flexibility.

EFG provides an attractive feature with its rental programs: the opportunity to purchase the equipment or renew the Rental Agreement upon its scheduled expiration. With a Rental Agreement from EFG, you get two great options: a rent-to-Own Rental Agreement and a Month-to-Month Rental Agreement.

Rent-to-Own Agreements: This program is ideally suited for those who think they might want to eventually buy the equipment. The Rent-to-Own option features low buyout purchase options, flexible rental renewal options, and easy return options.

Month-to-Month Program: If you have no plans to buy the equipment at the end of the original rental period, The Month-to-Month program offers the convenience and simplicity of utilizing the equipment and the ease of returning the equipment at the end of the rental period.

Rent-to-Own End-of-Term Options: At the end of  the term, you may:

Purchase Option for the equipment at the stated price, or
Renewal Option: the lease for an additional period at a stated renewal rate for a stated period
Return the equipment to Equipment Finance Group.

Operating Leases and rentals are defined as A lease that is treated as a true lease (as opposed to a loan) for book accounting purposes. As defined in FASB 13-13, an operating lease must have all of the following characteristics:

The lease term is less than 75% of the estimated economic life of the equipment.
The present value of the lease payment is less than 90% of the equipment’s fair market value.
A lease cannot contain a bargain purchase option (i.e., less than the fair market value).
Ownership is retained by the lessor during and after the lease term.
The lessee accounts for an operating lease or rental without showing an asset (for the equipment) or liability (for the lease payment obligations) on his balance sheet. Periodic payments are accounted for by the lessee as operating expenses for the period.

The first amendment lease gives the lessee a purchase option at one or more defined points, with the requirement that the lessee renew or continue 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 lessee appraisal and subject to a floor to ensure that the lessor’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 it at fair market value.

EFG knows the challenges of a small and medium-sized business intimately, and we know the trade finance business.

EFG provides a variety of trade finance solutions via its vendor relationships to equipment buyers ranging from small to mid-sized enterprises to corporations with significant regional and international business interests. A US manufacturer conducting business under NAFTA or a pan-European corporate navigating finance options in the US or Latin America

The trade finance needs of businesses engaged in international commerce vary significantly. With over 23 years of customizing unique financing solutions, EFG is a solution provider and partner to bridge the gap underserved by traditional banks.

Are you currently exporting your equipment or exploring promising opportunities in international markets?

Equipment Finance Group can help with fast, flexible, and effective financing solutions aimed at supporting your success in international markets. Equipment Finance Group specializes in the provision of trade finance, and we welcome the opportunity to service the special financing requirements of small and medium enterprises active in international markets.

Equipment Finance Group works with leading export credit agencies and others to facilitate your access to trade finance. We can assist by offering medium-term financing solutions directly to the foreign locations of US and EU buyers for their exported equipment.

In addition, EFG is uniquely positioned to assist you in providing attractive financing to your overseas buyer and in closing the deal in highly competitive international markets.

EFG understands the need for buyers to ensure efficient cash flow during times of capital expansion and acquisition. EFG works with exporters and their buyer clients to devise financing solutions tailored to the requirements of buyers importing capital products for their production cycles and often needing to manage cash until the equipment is in production.

Interest rates and any applicable fees are highly competitive, and financing is available in US Dollars. Financing solutions are generally extended independently of existing banks or other lines of credit and therefore do not impact existing financial sector relationships.

EFG typically pays an exporter within an agreed timeframe and subsequently collects funds from a buyer when settlement is due, thereby assuming the buyer’s risk, providing financing to the importer, and simultaneously providing risk mitigation and a competitive advantage in the form of attractive financing to the exporter.

Financing real Estate expansion to accommodate industrial machinery for the commercial plants is becoming an essential part of helping growing businesses.

Equipment Finance Group has partnered with C4 Financial Capital Markets Group offering innovative real estate financing solutions via debt & equity placement via national capital markets

EFG & C4 Financial provide access to the capital markets for commercial real estate transactions via financial firms that will enable us to provide the most competitive financing programs, including

• Freddie Mac
• Fannie Mae
• FHA / HUD
• Investment Banks
• Life Companies
• Banks (National / Regional / Local/ Thrifts and S&Ls)
• Pension Funds
• Private Funds

EFG & C4 Financial provides the most comprehensive group of debt and equity providers to provide a complete range of products and services.

• Fixed rate mortgages
• Adjustable rate mortgages
• Construction loans
• Bridge / Interim loans
• Mezzanine loans
• CTL transactions
• Forward Commitments
• Equity placement

EFG’s thorough understanding of your project and comprehensive financial analysis & equipment purchase approval expedites the Real Estate underwriting process to ease your project finance.