Types of Leases

Capital Lease: With a Capital Lease, title passes to the Lessee at lease signing (except where prohibited by law) and the equipment is owned free-and-clear upon final payment.  The Lessee purchases the equipment and pays for it over time. 

Operating Lease: An Operating Lease does not transfer title to the Lessee.  The term is less than the useful life of the equipment. At the end of the term, the Lessee has the option to purchase, renew or return the equipment. To qualify as an operating lease the Lessee cannot have a "bargain purchase price" and the present value of the lease payments must be less than 90% of the original equipment cost.

1st Amendment Lease: A 1st Amendment Lease gives the Lessee a purchase option at a specified point during the lease term and requires that the Lessee renew or continue the lease if the purchase option is not exercised. The Lessee is not given the option to return the equipment at the specified point in the lease. Instead, the Lessee is given the opportunity to purchase the equipment, usually at its fair market value or a specified dollar amount, whichever is higher.

Synthetic Lease: A Synthetic Lease is a financing structured to be treated as a lease for accounting purposes, but as a loan for tax purposes. Companies that are seeking off-balance sheet reporting of their financing and can use the tax benefits of owning the financed asset typically use this structure.

Sale Leaseback: A Sale Leaseback is a financing structure that allows a business to take capital equipment that has already been paid for and sell it to a leasing company for fair market value, or some negotiated amount, then immediately lease the asset back. This allows companies to raise cash for other investments or for cash flow purposes.

Tax-Exempt Lease: A Tax-Exempt Lease is designed for entities such as municipalities and 501(c)(3) corporations where the interest paid on a lease is exempt from federal income taxes for the Lessor, often resulting in lower financing rates.  Please give us a call to discuss this unique financing product in more detail.


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