Leasing 101

Leasing Overview

Leasing works for any type of business
Every imaginable type of organization leases throughout the world including proprietorships, partnerships, corporations, government agencies, religious and non-profit organizations. Over 80% of American businesses lease at least one of their equipment acquisitions and nearly 90% say they would choose to lease again.

Almost limitless possibilities
You can lease anything associated with the operations of your business (including all types of capital equipment, hardware, software, and soft costs such as installation and consultation).

How leasing is done on eLease
Fill out a short online lease application. eLease will review your application and contact you the moment you are approved to begin the leasing process.

Leasing 101 Index

Why Lease?

Better Value

More Convenient

Greater Control

Better Value

• Conventional bank loans usually require more money upfront than leasing and often have restrictive covenants.
• Conventional debt financing may require a 10-20% down payment.
• Leasing generally requires only one or two payments upfront, which are applied to your future payments.

Finance 100% of your costs
In most cases, the full amount of the equipment, as well as the service, shipping, installation costs and maintenance can be included in the lease. This spreads the cost out evenly over the term of the lease freeing up your money to work harder for you.

Realize significant tax savings
Monthly payments on operating leases are typically viewed as operating expenses offering significant tax benefits. You should always consult with your financial advisor to determine the most tax-beneficial lease for your company.

You can tailor a solution that meets your requirements
Leasing is flexible so that you can tailor the length and amount of your payments to meet your business' needs.

• "step-up" leases allow you to start with low payments that increase over time so you can concentrate on using the equipment to generate revenue.
• "skip" leases restrict payments to given months of the year so you can plan ahead to cover the slow times.
• "deferred payment" leases allow a significant grace period before your first payment is due.
• "master" leases offer a more convenient way to add more equipment to your existing lease.

Improve your cash flow forecasting
The fixed nature of a lease obligation eliminates uncertainty about the future cost of the equipment. Your lease payments facilitate more accurate forecasting and planning.

No ownership dilution
Leasing allows you to increase the cash flow of your company without bringing in investors to finance capital expenditures.

Understanding Leasing

Types of Leases

 True Lease or Operating Lease
 Finance Lease or Capital Lease
 Skip Lease
 Sale Leaseback
 60 or 90-Day Deferred Lease
 Master Lease
 Municipal Lease
 Step Up Lease

 Fair Market Value (FMV) Purchase Option
 Fair Market Value (FMV) Purchase
 10% Option
 10% Put
 $1 Buyout
 Comparing Purchase Options

While leasing companies may use the same name to describe a lease, the terms and conditions written in their contracts often vary. Be certain to review your documents carefully and ask your leasing company or eLease to explain anything that is unclear.

True Lease or Operating Lease

• What it is good for: Used with equipment that rapidly depreciates or becomes obsolete in a short period of time.
• How it works: In a true or operating lease, the leasing company retains ownership of the equipment during the lease. True or operating leases typically have no predetermined buyouts; customers usually classify these payments as an operating expense.
• Benefits: Lower payments and typically the most tax-friendly form of leasing, Additionally, true or operating leases offer three choices at the end of your lease:
  1. return the equipment to the leasing company,
  2. purchase the equipment at its fair market value or option amount, or
  3. extend your lease term.

• What it is good for: If you plan on owning the equipment at the end of the lease.
• How it works: The full purchase price plus interest charges are spread over the length of the lease.
• Benefits: You will own the equipment at the end of the lease for a minimal amount, such as a fixed percentage of the original cost or $1.00.

• What it is good for: Organizations that need a flexible repayment schedule such as seasonal businesses, agricultural companies, recreational services firms, and school systems.
• How it works: You specify months when no payments are made.
• Benefits: Flexibility to adjust to irregular cash flow.

• What it is good for: Customers who decide that leasing is more beneficial after having purchased their equipment. Sale-leaseback also allows companies to raise cash for other investments or cash flow purposes.
• How it works: The business that has already purchased equipment sells it to a leasing company, which, in turn takes ownership of the equipment and then leases it back to the business. eLease requires that the equipment be purchased within 90 days.
• Benefits: The sale-leaseback allows you to put money back into your business or into investments that appreciate rather than depreciate.

• What it is good for: Businesses that need equipment for operation and development that will not immediately generate revenue.
• How it works: A 60 or 90-day deferred lease can be structured as a finance lease or a true lease. There is usually no advance payment required, and the first payment is not due until 60 or 90 days after the lease begins.
• Benefits: The equipment you need can be acquired with little to no money up front and no payments for 2-3 months.

• What it is good for: Leasing additional equipment over a certain period of time.
• How it works: Separate lease schedules are created to accommodate the addition of equipment over that period of time. The master lease governs the basic terms and conditions. Each schedule may include different end of term options and different lease lengths but all will come under one "Master Lease."
• Benefits: Acquiring additional equipment is made more convenient.

• What it is good for: Local and state government organizations looking to acquire equipment.
• How it works: The tax structures and details of municipal leases vary considerably from standard business leases. Seek the advice of your financial advisor to better understand your municipal lease options.
• Benefits: Municipal leases are designed specifically for local and state government organizations.

• What it is good for: Businesses whose financed equipment will become more profitable over time.
• How it works: Payments increase according to a regular schedule over the life of the lease.
• Benefits: Payments can be differed to match cash flow.

Buyout/Purchase options are determined prior to the inception of the lease. They outline the customer's final financial obligations at the end of the lease. Leasing provides a number of options for purchasing your equipment, including:

Fair Market Value (FMV) Purchase Option
At the end of term, you usually have the following options:

1. Purchase the equipment for its then Fair Market Value,
2. Extend the lease for a pre-determined length of time (this will be specified in your lease contract), or
3. Return the equipment at the end of term (please check your lease documents to see if this is one of the options). Please note that some leasing companies require you to enter into a new lease agreement of equal or greater value if you choose this option.

Fair Market Value (FMV) Purchase
At the end of term you are obligated to purchase the equipment for its then Fair Market Value.

10% Option
At the end of term, you usually have the following options:

1. Purchase the equipment for 10% of its original purchase price,
2. Extend the lease for a pre-determined length of time (this will be specified in your lease contract), or
3. Return the equipment at end of term (please check your lease documents to see if this is one of the options). Please note that some leasing companies require you to enter into a new lease agreement of equal or greater value if you choose this option.

10% Put
At the end of the lease term you are obligated to purchase the equipment for 10% of its original purchase price.

$1 Buyout
The customer purchases the equipment for $1 at the end of a capital lease and title to the equipment is transferred from the leasing company to the customer.

Leasing 101 Index

E-lease vs. Borrowing, Credit, and Cash

Leasing 101 Index