TYPES OF FINANCING SOLUTIONS

Financing or leasing equipment rather than paying cash may offer a number of benefits when structured consistently with your tax strategies. With an operating or “true” lease, your monthly payments may be deducted as an operating expense. 

A tax-oriented lease allows Wachovia to retain tax benefits resulting in lower lease payment rates for the Lessee. Alternatively, your business may wish to retain its tax benefits with a non-tax oriented structure.

Tax-Oriented Products

As you place a higher value on your working capital and need for liquidity, equipment finance should become an integral component of your capital structure. For example, leasing accounts for approximately one-third of all capital expenditures in the United States.

Examples of Tax-Oriented Products

• Single Investor Lease
• First Amendment Lease
• TRAC/Split TRAC Lease
• Leveraged Lease

Benefits of Tax-Oriented Products

• Trade Off benefit —Tax benefit trade off for below market lease rates.
• Conserves working capital—cash is not tied up in equipment, but is free for income-producing investments or other uses.
• Covers all equipment costs—potential to finance up to 100% of the equipment, including additional expenses such as installation, maintenance, freight, and taxes.
• Easier to upgrade equipment—by not owning the equipment, the lessee may upgrade without obligation or market resale risk at the end of the lease.
• Tax savings—lease payments can be deducted as business expenses to assist in managing depreciation schedules and Alternative Minimum Tax (AMT).
• Avoid rapid equipment obsolescence—at the end of the lease term, the lessee may have a choice to purchase the asset, renew the lease, or walk away.
• Favorable accounting treatment—certain lease structures can achieve off-balance sheet accounting treatment.
• Debt covenant compliance—leasing may assist with covenant compliance – other obligations.
• Preserves other credit lines—bank lines and credit facilities remain available for other needs.
• Fights inflation—leasing costs remain the same over the life of the agreement regardless of equipment price or interest rate escalations.
• Matches financing with equipment life—lease term is typically tied to the assumed useful life of the individual asset.
• Provides flexible source of capital—a lease can be structured as either a fixed rate or floating rate obligation customized to meet your specific needs.
• Lease Lines—equipment lease lines available.

Non-Tax Oriented Products

With a non-tax product, you’re offered a definite term with a predetermined balloon. These options offer distinct advantages.

Examples of Non-Tax Oriented Products

• Finance Lease
• Secured Loan
• Synthetic Lease

Benefits of Non-Tax Oriented Products

• Taxes—company retains all tax benefits.
• Longer terms—generally available for longer terms, allowing greater flexibility.
• Balloon payments—offer a predetermined, fixed balloon to purchase equipment at the end of the lease term.
• Preserve borrowing capacity—opportunity to gain a new source of funding while preserving existing lines of credit.
• Fixed payments—annual expense consists of fixed payments, allowing the company to manage budget limitations.
• Accounting and budgeting are simplified—you determine the amount of time you will have the equipment, as well as your expenditure.
• Rate options—both fixed and floating rates are available.
• Funding lines—equipment funding lines are available.

Email This Page     Printer Friendly Version