American Specialty Equipment Capital (ASEC) gets you the best Leasing
or Financing Solution to fit your business needs while providing great customer service!
What is the right answer for you?
Remember that when you supply as much information as possible, your application will be directed to the best possible Lenders that have specific programs to fit your particular equipment and financial situation.
Not every program is tailored for your type of equipment, financial situation, lease type or even what your long term needs are-WE FIND THE BEST SOLUTION.
Supply ASEC with as much information as possible so we don't have to bother you about the details that most generic credit applications for other leasing companies or banks ignore
American Specialty Equipment Capital can work with your Vendor or Supplier to ensure that you get the best Leasing Solution!
A REAL WORLD EXAMPLE:
Paying Cash:
Most businesses pay cash because they are profitable and want to increase their profitability through buying, new or additional or even upgrading equipment.
Cash is easy to manage because you don't have to deal with any paper work or hassles. Additionally, since you own the equipment, you can depreciate it which is a great write-off that helps lower my taxes. It sure sounds like paying cash for that new equipment is an excellent way to go.
Paying Cash Doesn't Pay:
Let's assume your Friend comes to work for you. You have agreed to hire him/her for $40,000 per year because in your analysis you have determined that his/her employment will either make you or save you an amount in excess of that.
Now he/she comes to you and agrees to sign a binding Contract of employment where he/she promises to work for you for the next 5 years under well defined conditions, and as a result he/she wants his/her 5 year salary of $200,000 right now. I assume you would decline his/her offer because as a good businessman you are aware of two basic concepts that come into play here:
(1) you are going to pay him/her out of the cash flow he/she makes or saves you; and
(2) why pay in today's Dollars what you can pay in tomorrow's Dollars.
This same concept is as basic to purchasing equipment as it is to hiring employees. You should let the equipment pay for itself out of the cash flow it generates for you over its useful life, and use inflated Dollars to do it. Following are a few other considerations:
Depreciation:
The initial perceived advantage to depreciation must be weighed against, the effects of recapture at the time of sale (very simply stated, paying taxes on the depreciation amount that equals the sales price), and what it does to your AMT (Alternative Minimum Tax) calculations.
Inflation:
The Dollars you have in your hand today are far more valuable than the dollars you will have tomorrow, or 5 years from now, because of what inflation is going to do to their buying power. Leasing allows you to keep your valuable Dollars and pay the leasing company back in inflated Dollars.
Pre-Tax & Post-Tax Dollars:
When you pay cash for an equipment purchase, you do so with post-tax Dollars (Dollars you have paid tax on). When you lease equipment , you use pre-tax dollars. Since the average company is in the 34% tax bracket, every Dollar you spend on equipment will actually cost the company $1.34. Since a lease payment is usually state/local taxed, $1.00 costs $1.06.
Working Capital:
Dun & Bradstreet says that the average company earns approximately 12% per year on its working capital. By paying cash for equipment, a company loses this return. Additionally, many companies supplement their yearly working capital needs with a bank loan which lowers their return by the amount of the interest paid.
Lease vs. Buy: Example
The example below will use the following assumptions to illustrate the CASH difference between buying and leasing equipment:
LEASE EXAMPLE:
Equipment Cost: $100,000
Lease Term: 60 Months
Purchase Option: 10%
Monthly Rental: $2248.00
Tax Bracket: 34%
Return on Capital: 12%
BUY EXAMPLE & RESULTS:
$100,000 Purchase Price
$ 34,000 34% Tax
$134,000 After Tax Purchase cost
$ 60,000 Lost Return on Working Capital
$194,000 Real Cost of Paying Cash
LEASE RESULTS:
$ 2,248 Monthly Rental
$ x60 Months
$134,000 Total Lease Payments
$ 10,000 Purchase Option
$144,000 Real Cost of Leasing
What Should I Do?
Analyze and understand the concept presented here. Then, compare it to your business situation to see if it applies and which situation is best for you and your Company. If you agree that Leasing in most situations is the least cost method of acquiring the use of needed equipment, then
call or complete our secure online application.
Always consult a tax advisor to properly determine tax benefits or savings.
American Specialty Equipment Capital works for you to fulfill your equipment finance needs while becoming your partner in the process.
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 American Specialty Equipment Capital offers additional Business Finance Packages such as Working Capital Loans, SBA Loans and Equipment Finance Agreements
Contact us for additional information!
We pride ourselves in obtaining you the best Finance or Leasing Solution in a reasonable amount of time, but for us to do this we need your cooperation to obtain a COMPLETE- PACKAGED PROPOSAL for submission. The package is comprised of a Business and Personal Financial Statement, plus a description of why you need the Funding and Asset.
Lease vs. Loan
| LEASE - GOOD | LOAN - NOT GOOD | | No down payment with an option to buy equipment at the end of the lease | Requires a 10%-20% down payment and finance the remaining amount | | Leased equipment is enough to secure a lease transaction | Borrower usually pledges other assets for collateral | | When lease payments are current, the lessor can not disrupt the lessee's use of the equipment or demand payment | Must maintain certain financial ratios or business profits to continue to use the equipment or lender has the right to demand total payment | | Lease usually requires only the first payment, which is much lower than a down payment | A higher down payment with a loan payment at the end | | Equipment obsolescence is transferred to the lessors with no obligation to you at the end of the lease | You bear all the risks of equipment devaluation because of new technology | | True Lease can be claimed as a tax deduction, while taking advantage of shorter depreciation schedules | A portion of the loan payment as interest and for depreciation can be deducted only | | Operating-leased assets are expensed and do not show on the balance sheet, which can improve financials | Accounting standards required owned equipment to appear as an asset with a corresponding liability on the balance sheet |
Lease vs. Cash
| LEASE - GOOD | CASH - NOT GOOD | | You are responsible for the equipment for as long as your using it and in possession of the asset | Responsible for the entire life of the equipment | | Lease transfers tracking of the equipment to the lender | Responsible for tracking the equipment through the entire life cycle | | In many cases, interest, taxes and insurance is managed by the lessor | All costs are tracked by you | | Risk of obsolescence is responsibility of lender | Lessor bears the entire risk of devaluation and must be accounted for | | Leasing allows for easier upgrades and additions to the existing equipment, usually under the same terms | Lessor must manage the disposal or selling of the outdated equipment | | Leased assets are expensed and do not appear on your balance sheet, which can improve financials | Lessor must manage assets on their books with a corresponding liability on the balance sheet | | Leasing has a much lower impact on cash flow | Buying equipment has a much greater impact on cash flow-use your cash for operating capital |
Always consult your Tax Advisor for final Accounting and Depreciation benefits.
TYPES OF LEASES & TERMINOLOGY:
Capital Lease / Finance Lease / $1 Buyout May also be referred to as a nominal or ($1) dollar-buyout lease. These leases share the advantage of fixed monthly payments but with the guaranteed option to purchase the equipment for a nominal price at the conclusion of the lease. With this type of lease there is no uncertainty about the value of the equipment at the conclusion of the lease as the buyout terms are generally a part of the initial agreement.
- Finance type lease may not qualify under I.R.S. regulations for deductibility.
- The lessee is considered the owner of the equipment (unlike an FMV lease) and maintains full control of the residual value.
- The lessee can depreciate the equipment.
- Lessees records the equipment as an asset and the lease payments as liabilities on their balance sheets.
True Lease or Operating Lease - Also known as fair market value leases. The most notable feature of this type of lease is that its structure does not contemplate a full payout of the cost of the equipment as is the case in a "Finance" type lease. Two of the common tests are:
- The term of the lease is generally not greater than 75% of the equipment's anticipated useful life.
- The present value of the lease payments should not exceed 90% of the fair market value of the equipment using the lessee's incremental cost of borrowing. A significant benefit is that the monthly payments are also less than on a finance type lease (above) or even a bank loan. Typically the lessee either returns the equipment at the conclusion of the lease or may be granted the opportunity to purchase the equipment from the lessor for "the fair market value." Payments under this kind of lease structure are treated (by the I.R.S.) as rental payments and therefore are 100% tax deductible operating expenses. Also, as rental payments, neither the asset nor its corresponding liability need to appear on the company's balance sheet. The lessor retains the right to depreciate the equipment. End of lease features:
- The lessee may have to option to continue renting the equipment
- The lessee may have the option to "re-lease" the equipment The "P.U.T." Option Lease (Purchase Upon Termination) - This end-of-lease option establishes a mandatory purchase price, usually expressed as a percentage, e.g. "a 10% Put." This is a technique for lowering the lease payments during the lease term without creating an unknown end-of-lease risk for either the lessor or the lessee. As with our programs lease payments are fixed.
TRAC Lease - A TRAC lease is a special type of true lease that is generally used for "over-the-road" vehicles like trucks, tractors and trailers. Special provisions of the I.R.S. code allow for pre-determined residual values (as opposed to "future, fair market values) to be negotiated in advance while maintaining the "full deductibility" of a true lease. This type of lease is generally less expensive then other leases or conventional bank financing. The lessor would retain the rights to any depreciation
Acceptance ("Delivery & Acceptance") - The lessee’s acknowledgement that the equipment to be leased as has been received and is in satisfactory condition. For the lessee's protection, funds will not be released to your vendor until American Specialty Capital Equipment has received your written "delivery and acceptance" form and been able to reconfirm same by telephone.
Advance Lease Payments - Most leases call for a specific number of lease payments in advance. 1-2 payments is a typical requirement. The total number of payments during the lease are reduced by the advance payments. (Bank financing typically require much larger "down payments," typically 10-25% of the purchase price to close the loan along with "origination" and other fees.
"Application Only" Program - A streamlined credit application and review procedure that only requires the submission of a single page application with basic information about the business' principals, bank and trade references. This type of program does not require financial statements, tax returns, business plans or other more detailed disclosures.
Deferred Payment Lease - The initial lease payments are deferred 60, 90 or 120 days to accommodate cash flow/capital budgeting requirements.
End of Lease Options - What happens to the equipment after all payments have been made. Typical options are the $1 Buyout, FMV, PUT, equipment return, continued leasing and more.
Fair Market Value (FMV) Lease - Provides greater flexibility and lower monthly payments than the Finance Lease format. Key benefits include a number pre-set end-of-lease options:
- Return the equipment with no further obligation, or
- Purchase the equipment for its fair market value, or
- Re-lease the equipment for its fair market value, or
- Continue leasing on a month-to-month basis
- The FMV lease may also qualify as a tax deductible operating expenses.
Finance Lease ($1 Buyout, Capital Lease or Bargain Purchase Lease) - These 4 terms describe leases that combine lower, fixed monthly payments with the guaranteed-in-advance right to purchase the equipment at the conclusion of the lease term at a pre-determined price. These leases generally do not qualify as deductible operating expense and must be amortized and depreciated. There are, however, some significant other tax benefits under I.R.S. section 179, that may be available to your business.
Insurance - Because leased equipment is technically owned by the lessor until the satisfactory conclusion of the lease term, (proof of) all risk/casualty insurance will be required showing the lessor as a "named insured."
Lessee - The entity that is leasing the equipment from its owner, the lessor.
Lessor - The owner of the equipment to whom lease payments are made.
Master Lease. One lease (and one credit approval) - For several pieces of equipment purchased at different times from one or more vendors. Once you have been approved American Specialty Equipment Capital only requires brief addendums and equipment schedules for each new batch of equipment.
Off-Balance Sheet Financing - Financing that does not add debt to a company's balance sheet. This can be extremely important to companies with bank and/or other lender-imposed key operating ratio requirements. Under a true lease for example, the lessee does not show the leased equipment as an asset (the lessee does not own the equipment, nor does the lease structure contemplate ownership), nor therefore, is the lessee required report the corresponding long term liability. See the "True Lease" definition in this section or the "Lease Types page for additional related discussions.
Operating Lease - Any lease that is not a capital or finance lease. See FMV lease (above)
Progress Payments (Vendor Pre-Funding) - A special kind of lease for vendors who require up to 100% of the selling price prior to delivery. (Most leases are designed to fund your equipment vendors immediately after you confirm that the equipment that you ordered has been received in satisfactory order.) Some vendors, however, require that specially ordered, configured or manufactured-to-order equipment be paid for in stages ranging from small up front, order-confirmation deposits, to multiple "progress payments" as the order gets closer to shipping to full-prepayments. American Specialty Equipment Capital can accommodate almost any equipment vendor's pre-payment requirement.
Purchase Option - See "End of Lease Options"
PUT Option (Purchase Upon Termination) - A specialized option, that can be offered in conjunction with an FMV lease that requires a purchase of the equipment at the conclusion of the lease at a fixed-in-advance percentage of the original purchase price (e.g. 10%).
Rate Factor - Once the equipment cost has been determined, the actual monthly lease payment (before tax and one-time fees) can be computed by multiplying "the factor" (usually expressed as a 5-digit, decimal number) by the equipment's cost.
Recourse (or "vendor recourse") - Generally applies to the funding source (lessor's) right to require the manufacture or distributor take back and/or take responsibility for re-marketing equipment that is not paid for as a result of default by their customer(s), the lessee. Note: American Specialty Equipment Capital does not require recourse" agreements with its vendors.
Residual Value - The remaining (market) value of the equipment at the end of the lease term
Sale Lease Back - A technique for re-capturing cash previously expended on equipment by selling that equipment to ASEC who in turn leases that same equipment back to the company over a period of 12 to 60 (or more) months. Equipment may be subject to an independent valuation appraisal prior to funding.
Seasonally Adjusted Lease Payments - Lease payments that are "adjusted" to accommodate a businesses cash flow seasonality. Payments are set lower for the businesses "slower" or "off-season" months and set slightly higher during months of the business' traditionally stronger cash flow. e.g. payments might be lower initially to allow a company start generating.
Security Deposit - An amount paid at the beginning of the lease that is held by the lessor until the satisfactory payment of all amounts due under the lease terms, at which time the security deposit amount is returned to the lessee.
Skip Payment Leases - The lessee selects a series of months in which no-payments will be due.
Step Payment Lease - Lease payments are stepped up (or down) to accommodate the lessee's anticipated cash flow pattern as the company begins to see its return from the acquired equipment. . e.g. payments might be lower initially to allow a company start generating.
TRAC Lease. (Terminal Rental Adjustment Clause) - Many of the benefits of a true lease, but designed specifically for over-the-road vehicles like trucks, tractors & trailers. Special provisions of the tax code allow for pre-determined end-of-lease valuations (unlike a true or FMV lease). Generally the most aggressive pricing for vehicles. Lessee bears some risk if the equipment does not bring the anticipated resale value at lease end. May include FMV or continued rental options.
True Lease (Tax or Operating Lease) - A true lease, by definition, does not call for the full payout of the equipment cost during the lease term, nor does a true lease contemplate a transfer of title following the conclusion of the lease. The lessee is only "paying for the equipment during a portion of that equipment's useful life. Hence the lease payments are often treated as 100% tax deductible operating expenses. The lease generally does not appear on the balance sheet as a business asset or as a business liability. This type of lease also offers the lowest payments for a given term. A true lease may (but does not have to) include an FMV (fair market value) option which allows the lessee to purchase (take full ownership of) the equipment for its legitimate fair market value at the time the lease terminates.
Working Capital - In (basic) accounting/financial terms working capital is defined as current assets-current liabilities. It is one measure of a business' "ready cash." Leasing conserves working capital by allowing a business to better match (time) its expenses for the acquisition of equipment to the revenue generated by that that equipment generates.
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