Lease Types

At AmeriTech Leasing we strive to understand your needs and objective and can offer a wide range of lease structures and terms in support of your equipment investment. For additional information on leasing terminology, see our Definitions page.

WHAT IS LEASING?

Leasing is a simple agreement, between the owner (Lessor) of the equipment and the user (Lessee) covering the use of the equipment for a fee (Rental), which may become complex because of tax consequences, cash flows and financial reporting. Leasing may appear complicated, sometimes misunderstood, but continues to grow in popularity. Capital equipment acquisitions through utilization of lease purchase programs has seen rapid growth in recent years. Lease financing has added a dimension to financing, as well as a multitude of benefits and advantages never before available through conventional debt or equity sources.

MECHANICS OF LEASING

There are usually three parties involved in a lease; the seller of the equipment who we will call the Vendor; the one who will use the equipment is the Lessee; and the leasing company which pays cash to the seller or Vendor of the equipment is called the Lessor.

The function of the leasing company (Lessor) is to buy the equipment from the Vendor for cash and lease it for a specific period of time to the Lessee.

FINANCIAL LEASES

Financial leases are the most commonly used type of lease. Financial leases are utilized in the majority of leasing programs provided by AmeriTech Leasing.

The two most common types of Lease/Purchase agreements as follows:

A. The $1.00 purchase agreement typically allows the Lessee to capitalize and depreciate the asset. The advantage of this lease is that the equipment is paid for as the equipment is used, over the lease period, and the title is passed for $1.00. The 10% purchase agreement can allow the Lessee to fully expense lease payment, or depending upon accounting treatment, capitalize and depreciate the asset. The advantage is to lower the cash flow out of the company. Title then passes for this fixed purchase agreement at the end of the term for 10% of the original equipment price (final payment is a 10% balloon payment).

B. True Leases – With a True Lease the rental payments can be a tax-deductible expense. In other words, this asset is not capitalized or depreciated. THE RENTALS ARE EXPENSED. The true lease includes a purchase option that allows the Lessee at the end of the term to:

1. Return the equipment to the Leaser.
2. Purchase the equipment at its then Fair Market Value (often times it does not exceed 10% of the original equipment cost).
3. Renew the lease at its then Fair Market Value. For many asset types, the end of lease Fair Market Value can generally be pre-determined.
4. Where applicable, use any trade-in value on a new lease with us.

MAJOR COMPARISONS OF TRUE LEASES AND LEASE/PURCHASES

The following list of comparisons also identify a number of strong selling points about leasing:

• Lease Purchases carry a fixed purchase agreement and are used primarily where the Lessee is concernedwith the ownership over the use of the equipment.
• The True Lease serves to conserve working capital by providing a lower payment to the Lessee.
• The True Lease is helpful from a tax advantage in that the rental payments are expended.
• With a True Lease, the Lessee is primarily concerned with use of the equipment over ownership.
• The True Lease allows the Lessee to lower the monthly payment or rental. This is particularly useful when there are taxcarryovers or when a lower monthly rental is desired.
• In both the Lease/Purchase and True Lease, ownership can be achieved.

Operating Leases
Operating Leases, which generally govern the use of equipment over a short time and meet a specific set of IRS qualification tests. They typically govern the use of equipment where complex financial statement and/or tax treatment is necessary.

Tax Exempt or Municipal Leases
Tax Exempt or Municipal Leases are lease agreements with public bodies and are unique due to tax stature and potential fiscal funding limitations.

Leveraged Leases
Leveraged Leases, which are typically structured on “expensive” assets, are very complicated and can include trusts and contracts between more than a single funding source or “investor”.