Types of Leases

There are various types of leases and they can be structured to provide maximum benefit to your business. Cash flow and tax advantages are certainly considerations, but less obvious ones can also be equipment obsolescence and companies that are in rapid expansion, as an example.

We encourage you to speak to us so we can determine what is best for you.

True Lease (also called a “Tax Lease” or “FMV Lease”)

This lease, designed per IRS Revenue Ruling 55-540, allows the lessee(user of the equipment) to claim the entire amount of the lease payments as a tax deduction. At the end of the lease term you will have three options to choose from: 1) return the equipment, 2) re-lease the equipment or 3) purchase the equipment.

These leases are attractive both to businesses wanting the fastest way to “write-off” the use of the equipment and to businesses concerned about technology obsolescence of their equipment.

Capital/Finance Lease

This lease is classified and accounted for by the lessee as a purchase and by the lessor as a sale of financing.

This type of lease is particularly attractive to the businesses wanting to own the equipment at the end of the lease.

Operating Lease

This type of lease, designed according to FASB (Financial Accounting Standards Board) rules, allows for “Off-Balance Sheet” reporting.

These leases are attractive to those businesses desiring a higher ROA ratio with regard to financial reporting as well as to those concerned about technology obsolescence of their equipment. Similar to a true lease, if you do not want to return the equipment at the end of the lease, you usually have the option to purchase the equipment.

Sale/Leaseback

This is an arrangement where the lessor purchases the equipment from a business that owns and is currently using that equipment. The lessor leases that same equipment back to that same business. In essence, the lessor becomes the new owner of that equipment and then leases it back to the original owner, who continues to use the equipment.

Sale/Leasebacks are targeted to businesses that are expanding rapidly and need to free up working capital that is tied up in equipment previously purchased.

Deferred Payment Lease

Payments can be deferred. For example, your equipment is installed and you get the benefit of using it for several months before the lease payments begin.

This lease structure is beneficial when the income generated from the use of the equipment is delayed several months from the time that equipment was first put into use.

Step Payment Lease

Payments can be stepped (or ramped) up and/or down during the lease term to match projected cash flows.

Skip Payment Lease

Payments can be skipped at one or more points during the lease term to match the cash flow patterns of businesses that are seasonal in nature.

Pre-paid Purchase Option

By paying, upfront, a percentage (typically 10-20%) of the equipment cost, your monthly costs are lowered and you own the equipment at the end of the term for a nominal payment.

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