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Types of Lease Structures for Equipment Leasing

When leasing equipment for your business, there are a variety of lease structures to consider depending on which company you choose.

Alliance Funding Group offers several lease structures for equipment leasing for the greatest level of flexibility for our customers. Here are a few lease structures described below:

• Operating Lease – This is the traditional lease agreement that typically provides the lowest payment and is a good option for overcoming any current capital restraints. The operating lease is treated as a “true lease” as opposed to a loan for accounting purposes. The title does not transfer to the lessee, and the term of this type of lease is typically less than the useful life of the equipment.
• Capital Lease – a lease classified by the lessor as a sale or financing and the lessee as a purchase if one of three conditions are met, with a title transfer to the lessee once one of the conditions are met. View our page on capital leases for more information on those conditions.
• First Amendment Lease – The first amendment lease allow you to purchase the equipment at one or more predetermined points during the lease, as a sort of “best of both worlds” option. There is often a requirement to renew the lease if the purchase option isn’t exercised. The option to purchase price is typically the fair market value.
• Tax Lease – A lease in which the lessor, the financier, is the party that is considered the owner of the leased equipment for tax purposes. The lessor assumes both the benefits and costs of ownership including depreciation, while the lessee (you) can still write off the lease payment as an expense.
• Synthetic Lease – A synthetic lease is structured so that it is treated as a capital lease (similar to a loan) for tax purposes and an operating lease (traditional lease) for accounting purposes. This type of lease was popular in the late 90s and early 2000s, then saw a decline and is now making a comeback.

Several other lease structures are available through Alliance Funding Group – we provide you with unrivaled flexibility as one of our top benefits.

What’s the best option? Well it depends on your business and specific situation.

If these lease structures are confusing to you, it’s understandable. At Alliance Funding Group, we’re able to answer your questions about the different lease structures we offer and connect you with the right one.

Call us today at 1-800-978-8817 to learn more or ask any questions about our various equipment leasing options.

How Equipment Leasing Can Improve Cash Flow

Equipment leasing can improve cash flow in many ways – by keeping your costs minimal upfront, you can ensure that your business has access to capital that can be used for a variety of other needs.

From marketing, additional equipment, to operations, expansion and more, you’ll have the extra cash you need and won’t have to spend huge sums of money on a down payment for equipment purchases, which can often drain your business savings.

Many equipment leases have flexible payment terms with minimal to no down payment, so that you can get the equipment you need while still having access to much of your cash.

It often doesn’t make sense to tie up your cash

When purchasing equipment, you often have to tie up large sums of cash in the down payment, which often doesn’t make sense for many types of businesses.

When your cash is tied up you have less available for paying vendors, bills, for marketing expenditures, etc. The down payment for many types of equipment can also be substantial and drain your accounts. This isn’t necessary when leasing is an option.

Smaller payments per month

Many lease payments are significantly smaller than financing payments per month, allowing you even more flexibility with your cash flow. The payments can be significantly lower than financing payments.

This can be very important when you have a relatively tight monthly budget, or when launching new operations or a new business.

While paying as little as possible for equipment, you’re able to utilize it as needed to expand your business and generate a healthy cash flow.

Add a minimal monthly payment to minimal to no down payment, and the cash flow advantages are clear.

Once your business has maximized the value of its newly leased equipment and generated enough cash, it can make sense to finance equipment the next time around, especially once you are familiar with the level of revenue that the equipment can generate and can justify a purchase with detailed financials.

Easier budget management

When you own equipment, you have to track a variety of expenses, depending on how complex and costly the equipment is. Some types of equipment have multiple maintenance requirements and require you to set aside a separate budget for that, along with still having to take care of the monthly payment.

When leasing equipment, you are typically buying new equipment that is warrantied (depending on the circumstance), and as a result you aren’t required to have a separate account for maintenance expenses. Your cost of ownership is simply the monthly lease payment, which can greatly simplify your budgeting.

If you are looking to improve cash flow for your business, Call us today at 1-800-978-8817 with your questions about equipment leasing.

The First Amendment Lease Structure

The first amendment lease structure is often a good option if you are purchasing heavy equipment as it allows you to have the option to purchase the equipment outright at various points during the contract.

No option is available to return the equipment during the lease period. If the purchase option is not utilized (at a fair market value or a specified price), the lessee must renew the lease at the end of the term.

It may make sense to consider this lease structure in many circumstances, and AFG can assist you with making a determination on it or our many other lease structures.

There are many advantages to choosing this type of lease structure, including the following:

Are you leasing expensive equipment that will increase your revenue?

When leasing expensive equipment, there can be many advantages to first choosing to lease the equipment rather than buying it outright upfront, and then making a purchase once the lease term has come to an end, or at another point during the lease.

For example, you will be able to utilize the equipment to generate revenue with a lower upfront cost when you choose the first amendment lease structure. Once the equipment has helped your company reach higher revenue levels, then you get to purchase the equipment at a fair market price.

Not sure whether to lease or buy?

It can be challenging to determine whether or not you want to lease or buy. A first amendment lease allows you to make a decision so that you can get the equipment you need and still have the option to buy it down the road.

When the lease term expires, you are able to exercise the right to purchase the equipment at a fair market price. At that point you may have to take on the added responsibility of maintenance and other costs of ownership, but you may be in a better position at that point to take on those costs.

There are a variety of other situations in which a first amendment lease may make sense for your business. Meet with one of the experts at Alliance Funding Group today to determine your specific needs. We will find the appropriate lease structure for your current situation, whether it is a first amendment lease, capital lease, operating lease, tax lease, or any other option we have.

Call us today at 1-800-978-8817 with your questions about first amendment leases or other lease structures.