Purchase vs. Lease

[Steve Frazier]

What are the advantages/disadvantages of one method of purchase over the other? I leased a truck to purchase because I was told it would end up costing less in the end, but I believe it ended up costing me more in reality. Can we hear how this works?

[John Banks]

What are the advantages/disadvantages of one method of purchase over the other? I leased a truck to purchase because I was told it would end up costing less in the end, but I believe it ended up costing me more in reality. Can we hear how this works?

It depends on the residual amount, or what the truck is worth, the buyout, at the end of the lease. Depending on the residual amount, and if you intend to purchase the vehicle at the end of the lease, yes, it can cost you more. Typically people do a lease to get a lower payment v. buying, again it depends on the residual. I bought a car years ago. Originally I was looking to lease it, but when the lease payment ended up being more than the purchase payment, it made no sense.

There are also leases, typically equipment leases, structured in a way to keep items off your balance sheet to, in some cases show a healthier balance sheet. Some terms offer certain tax advantages. It depends on the structure of your business and what you're looking to achieve, both financially and in the business overall.

I did the same as you with my F250. I originally did a 3 year lease back in 2000. My plan was to make the lower lease payment, then purchase the truck at the end of the lease. When the lease was up, I made the purchase. I have since sold the truck, a few months ago, but in the end, I paid more for the vehicle than I would have if I would have just bough it to begin with.

We still lease a vehicle for my wife, which she runs through her business. But with her, she doesn't want to have to deal with maintenance, reliability, etc, so for her it makes sense. For me, I don't think I'd do it again for my trucks and equipment.

Sorry to ramble, but I hope this helps Steve.

[Finance Guy]

John has some good points... Let me throw out some questions and answers we are currently hear and answer.

WHY WOULD LEASING BE SMARTER THAN USING CREDIT LINES OR LOANS FROM THE BANK TO FINANCE OUR BUSINESS EQUIPMENT?

Good Question… Typically, lines of credit or bank loans look like a good deal at first glance. However, if you take a closer look at a typical equipment purchase with bank financing you may reconsider your options…

Let's talk about a few things bankers may neglect to tell business owners about equipment financing:

ONE
Bank loan products, while flexible on soft costs (i.e. freight, labor, accessories, etc.), usually require cash down. In some cases 20% to 30% of the equipment cost may be required up front. This will eat away at your business's working capital.

TWO
No matter the size of the transaction, banks usually require updated financial information and tax returns for your business as well as all owners of your business. This can delay equipment acquisition and result in lost income from equipment that isn't on the job.

THREE
A banking "relationship" may yield a quick loan turnaround if the proper documentation is on file, however, this may limit your borrowing power for future needs. Multiple equipment loans or exposure with a bank can halt your business's borrowing power in times of need or crisis.

FOUR
Bank loans will increase a business owner's debt ratio. When banks report lines of credit or installment loans to the credit reporting agencies, it adds debt to the business owner's personal credit profile. This can affect your ability to make consumer purchases, such as a car, home or investment property.

FIVE
A banker may suggest that a small business owner or proprietor take a home equity loan out for an equipment purchase. While this may seem like an easy solution, most accountants and financial advisors will advise against co-mingling personal assets for business use. In addition, the equity in your home is not available if you need it for a personal or family emergency.

SIX
When banks provide a business with a line of credit or loan they will frequently make the business owner sign paperwork that will include their entire business as collateral (accounts, inventory, receivables, equipment, assets, etc.). This means that if for any reason that payment is not made the entire business is at risk.

SEVEN
Bankers will be the last to tell you the advantages of leasing and "off balance sheet" financing. With a true lease it is possible for a business to fully expense lease payments as rental expenses. This can provide significant tax deductions for your business.

EIGHT
While it is important for your business to have a banking relationship, and a resource to borrow money from in times of need, it is also important to diversify financial relationships. Diversifying funding sources allows your business to take advantage of a variety of financing options or programs. This minimizes exposure to one financial institution and allows you the freedom to select the option that best meets your needs.

If there are any specific questions let me know. Every program I put together is formatted in the best interest of the business I am working with. I listen to my customers and do my best to help them to succeed, repeat customer's are a good indicator that you are doing a good job and have gained trust.

For those that are opposed to leasing we can put a straight finance program together.

FG

[Finance Guy]

FYI

Comparing a car lease to an equipment lease is, well, let's say... Not comparable. At all!!!

FG

[hillrancher]

Being a small contractor it is almost impossible to lease and come out. I do lease, but never pays off. I lease purchase to make sure I need the piece of iron. I will lease a specialty piece. Lease to make sure it will make it payments and have leased to save taxes, but not sure of this angle. All I know about leasing the piece has to be used everyday to pay off and being a small contractor we don't use all our equipment every day.

[RyanCKing]

Does anyone have any links to more info on this such as articles about specific situations?

[Finance Guy]

I will put together some specifics and post, but for the meantime...

I can put together programs that you can skip payments, make no payments for 90 days, have smaller payments during "your slow time" of the year if need be and so much more. Try getting that from a straight purchase at your local bank. It sounds like most of you have not had a financing person sit down and listen to what you really need.

FG

[Steve Frazier]

....and have leased to save taxes...

This is the angle I was getting at with my first post. How are the tax advantages realized? The leases I'm referring to are with the intent to buy at the end of the lease, it's just viewed as a different method of financing the purchase. I was told in the long run it's cheaper with all things considered, but when I worked it out the interest rate was quite a bit higher than a regular loan would be.

Does the tax advantage overcome the higher interest rate?

[Finance Guy]

Steve, to answer you question, Yes, the tax advantage overcomes the sometimes higher interest rate.

FG

[Finance Guy]

And keep in mind that your credit score, time in business, net worth, etc. determines your rate, not the type of financing program you choose. I can guarantee that I will get you the best rate that you qualify for.

John Deere can advertise 0% programs but not everone will qualify for that...

FG

[PSDF350]

I'm leasing to buy like you are thinking Steve. Honestly if I had it to do over again I wouldn't. Just did taxes and it didn't do much for me. Also when they figuire intrest rate it isn't normal. I am not sure how exactly how it works but when I try and figuire it at the rate they say I am paying, my payment comes out far cheaper than what I am paying. Also if you are in the money and decide to buy outright you still pay all intrest. I relize I am no shinning example but if I want to pay off my skidder it is the same price as if I pay for the 3 years that lease is for. But you have been in bus alot longer than me (mine is considerd a start up.) So rate was much higher. And you will get better deal. Good luck.

[kamerad47]

what about a lease purchase??

[John Banks]

Also when they figuire intrest rate it isn't normal. I am not sure how exactly how it works but when I try and figuire it at the rate they say I am paying, my payment comes out far cheaper than what I am paying.

I haven't looked at a lease agreement in a while, but I think to get to the real interest rate, you multiply the money factor by 24, which will get you to the true apr or apy, whichever one is governed by truth in lending disclosures, i forget...

[HDfatboy]

I'm leasing to buy like you are thinking Steve. Honestly if I had it to do over again I wouldn't. Just did taxes and it didn't do much for me.

I have been self employed since 1997 and did not discover equipment leasing until 2001 at the advice of my CPA who is good with this stuff (I'm not too bright). At first I financed everything with my bank. Eventually I outgrew what the bank would give me because everything I financed showed up on my personal credit report. All of that equipment and debt lowered my credit score a lot. That hurt me when I went to purchase my house and Harley. I am paying more on both of those now because of the amount of debt I was showing. Even though the debt was paid for by my company and I have never missed a payment. My leases do not show up on my credit report.

It was explained to me that there are a few different types of leases. The leases with a $1 at the end and you own the stuff gets written off like a regular bank loan (depreciation) and isn't the best taxes. I did a fair market value lease which I am writing off 100% of each payment as a "rental" expense per my CPA. I was scared about doing a fair market lease but the bank gave me a side letter stating the buy out would not be more than 10%. Basically I get back approx. 1/3 of each payment come tax time because I take all my lease payment off of my taxable income.

Hope this info helps.

[stuvecorp]

The financing issues can be very frustrating. We have one loan that is a lease that the accountant isn't really sure what it is (that one was a mistake on my part - never seem to get enough work for that truck). The banks never want to loan money if you are self employed. I sold our skidsteer last spring and went in to check about financing the new one and they said that I can't afford it, even with over 25% down. Case credit must use that new fuzzy math.

[HDfatboy]

I asked my CPA last night why people either love or hate leasing equipment. His quote was "most CPA's do not know how to use a lease to the customers advantage and write them off like a typical loan because they don't really know what else to do with them". My CPA works mostly with contractors so he's done his research which pays off for my company big time.

He suggested to call your CPA and ask him/her about how to write off a lease. If they don't immediately go into detail...get another CPA. Your CPA should know YOUR type of business. I wish I would have met mine in the early years...you live...you learn.

[Finance Guy]

HDfatboy.... YAY, Someone gets it!!!! Your CPA is smart. You posted good information. I can say that all day long but until someone like yourself that has figured it out will others take notice. There is a reason 90% of successful businesses LEASE their equipment.

Again, if anyone needs individual assistance I am here for you. I am the "Finance Guy", site sponsor and here to help your succeed.

FG

[dirtboy]

How do payments compare on a lease to a regular purchase. I have been in bus. for 14 yrs. started with a small bachoe and a pick up. Now I have larger equip. but my biggest problem on a day to day basis is cash flow(like everyone else) Would a lease help my cash flow situation or is it purely a tax issue. Do you have any suggestions for this problem besides working sundays lol

[Finance Guy]

Cash flow wise - A lease requires less out of pocket expense to start. The payments may be slightly higher than a straight bank LOAN; however, in the end after the tax advantages a lease actually costs you less. If you get a loan from a bank it shows up on you credit bureau and a lease will not. The advantage of a lease here is if you are having cash flow concerns and you go to your bank and apply for a bank loan for operating funds you possibly will get declined due to the fact that you have too much exposure (other loans) with them. The bank would not see that you have a lease and would approve you for an operating loan.

Hey Dirtboy... Take this Sunday off!!! :)

[John C.]

I've got a question about the end of a true lease.

Lets say the residual on a $100,000 machine at the end of a three year lease is $30,000 and the machine is only worth $20,000, who pays the difference?

[Finance Guy]

Hi John C,

A 30k residual on a 100k lease would be 30%; I have never seen a residual that high. If for some extra ordinary circumstance someone was in that position my advice would be to walk away from the machine. Being that the machine is only worth 20% of its original value after such a short time I would turn it in and get a different machine. Being that it is a true lease you have the option of returning the machine at the end of the term with no penalties. Now, if you really liked the machine you could buy it for the stated residual and own it but that would mean paying 30k for a machine that is only worth 20k... Not such a great idea. Also, if you had a true lease that had "Fair Market Value" at the end of term you could buy it for the 20k.

Did that help?

Todd

[Orchard Ex]

How does the lease expense compare with depreciation expense tax wise?

[ror76a]

O.K. lets see if I have this right:

Purchase Price $150,000
Total Months 48
Monthly Payment $3,000
Yearly Payment $36,000
Total Payments $144,000
Residual $15,000
Total Paid $159,000
Lease Preimium $9,000
Tax write off % 33%
Write off/yr $11,880
Total Write off $47,520
Total paid-write off $111,480
Total savings $38,520 :cool:

I made a spreadsheet to do the math, but I cant attach it apparently. The green are values that I made up, don't know how realistic they would be.
Now for my questions. How do you take the 33% (for that matter how do you determine the %) of the lease payments that you can take off of your taxes? Does used equipment qualify for the write off? Can you lease used equipment? How is the residual determined (I used 10% of the purchase price), but if it was market value (probaly closer to 1/2 of purchase price) you may not have any savings??:confused:

Thats enough finance for me for tonight, :dizzy time for some :drinkup

[John C.]

Finance Guy,
Are you saying the lessor is responsible for the difference between market value and residual at the end of the lease. Is this what is called an open end provision? I've seen car leases that were closed end where the lessee had to pay the difference.

Also ror76a has a good question. Who and how are the residual and the percentages figured. I was also told that the lease payments were one for one against the bottom line as long as they were a true lease.

Thanks for the info!

[Finance Guy]

How does the lease expense compare with depreciation expense tax wise?


There are a couple ways to work a lease...

1) Accelerate the depreciation 100% the first year and call it good.
2) Write off the entire payment, year to year for the term as an operating expense. A lease is considered a rental to the IRS and can be completely written off

FG

[Finance Guy]

ror76a... You have some good information there. When you get to this point it is best to consult your accountant (preferably one that understands a lease) as I do not want to mis-inform you on percentages. I say this because the % is based on your tax bracket and I do not have all the necessary information to quote you.

Keep in mind that a lease is considered an operating expense and can completely written off.

Yes, used equipment can be leased, I do it everyday.

I never offer more than a 10% residual. Residuals are determined by the underwriting bank, most use either a $1.00 or 10%.
Fair market value residual is used as well but I rarely see them, these usually range between 15%-25%.

[Finance Guy]

Finance Guy,
Are you saying the lessor is responsible for the difference between market value and residual at the end of the lease. Is this what is called an open end provision? I've seen car leases that were closed end where the lessee had to pay the difference.

Also ror76a has a good question. Who and how are the residual and the percentages figured. I was also told that the lease payments were one for one against the bottom line as long as they were a true lease.

Thanks for the info!

You are combining two scenarios. You would either have a fair market value residual lease and the option would be for you to purchase the equipment for its fair market value. Banks would typically get comps from Machinery Trader and some vendors they work with. Keep in mind that a bank will usually not offer an FMV option if the equipment will have such a low value at the end of the term. You can also return the equipment.

The second scenario is the 10% residual option. You would simply have the opportunity to buy the equipment for 10% of the price when the lease was originated. I like to cap residuals at 10%.

Lease payments are one to one against the bottom line on a true lease.

[tuney443]

Something that has not been discussed which to a small owner-operator like myself is important is the fact that on a lease you are not allowed to customize or alter your rig because basically,simply put you ,don't own it.There are so many protective clauses in your contract,it would make a Philadelphia lawyer wince.I have never heard of any small owner happy with a lease,whether it's iron,a car,truck--the lending institution always comes out the winner---more so when you get penalized for going over your allowable hours/miles.

[Finance Guy]

Something that has not been discussed which to a small owner-operator like myself is important is the fact that on a lease you are not allowed to customize or alter your rig because basically,simply put you ,don't own it.There are so many protective clauses in your contract,it would make a Philadelphia lawyer wince.I have never heard of any small owner happy with a lease,whether it's iron,a car,truck--the lending institution always comes out the winner---more so when you get penalized for going over your allowable hours/miles.

tuney443... I finance small businesses everyday and, respectfully, I have no idea what you are talking about.

FG

[Finance Person]

Something that has not been discussed which to a small owner-operator like myself is important is the fact that on a lease you are not allowed to customize or alter your rig because basically,simply put you ,don't own it.There are so many protective clauses in your contract,it would make a Philadelphia lawyer wince.I have never heard of any small owner happy with a lease,whether it's iron,a car,truck--the lending institution always comes out the winner---more so when you get penalized for going over your allowable hours/miles.


tuney443- Most leases give you an option to upgrade. Of course you don't fully own the equipment yet since it’s a lease to own but I have never heard of lease from a lease finance company with miles and hours restrictions. Most of those restrictions are mainly done with penske and hertz type of leasing companies. With those guys you are restricted to their equipment and maintenance plan. By going through a regular equipment lease company you can pick and choose your equipment from a vendor or private party and it can new or used.

[tuney443]

I will bet you dollars to doughnuts that an average lease contract is at least twice as long as a simple loan agreement.And with all the covenants,restrictions,and the like,I personally would never enter into a lease.For some big businesses,it might be right,but not for an owner operator IMHO.

[PSDF350]

I will bet you dollars to doughnuts that an average lease contract is at least twice as long as a simple loan agreement.And with all the covenants,restrictions,and the like,I personally would never enter into a lease.For some big businesses,it might be right,but not for an owner operator IMHO.

Lenght isn't so much the problem> It is that you do pay more interest, but with a lease you can claim payments istead of deductable. So I think with equipment or cars/trucks that are being replaced every few years the tax benifit makes a lease more attractive. The downside of a lease is that if you lease to own (like I did anyway) you are going to pay every single dollar of that 3+- year lease. No paying off early for whats left on the loan. You want to get rid of that piece of equipment because it's not what you..... So you want to get rid of it and get something else/or not, you have to pay how many other payments you have left plus the dollar or what have you for buy out.

[Steve Frazier]

I'm not sure you are talking about the same kind of lease Tuney. I leased my second truck, just the cab and chassis. I paid cash for the dump body and installed a plow on it. I cleared this with the leasing company before I attempted any of this, and was told I could do anything with the truck I wished to make it work better for me.

There was no down payment, I bought the dump body with what I'd have put down and leased the full amount of the chassis. My buy-out was just over $1000 at the end of 4 or 5 years, I don't remember the term. The full payment came off as a tax deduction, not just the interest, and it didn't count as an outstanding loan on my credit rating. This was shortly after I started my business and I had other equipment to purchase as well. It worked out well for me in the situation I was in as a small business,

[JDOFMEMI]

A lease has many benefits, as Steve said above. The one major reason I will prefer not to lease is that you have to pay the full term of the lease if you decide to sell, maybe because the market chaanged, and you need to sell one piece to buy another. I have a friend in that situation now, and it just takes away some of your flexibility.
They are good for a lot of people though.
Just depends on your overall situation. One main advantage is its easier to qualify for a lease than conventional financing.

[tuney443]

A lease has many benefits, as Steve said above. The one major reason I will prefer not to lease is that you have to pay the full term of the lease if you decide to sell, maybe because the market chaanged, and you need to sell one piece to buy another. I have a friend in that situation now, and it just takes away some of your flexibility.
They are good for a lot of people though.
Just depends on your overall situation. One main advantage is its easier to qualify for a lease than conventional financing.

Umph--Sounds like what Eliot Spitzer just went through with his $4300 per hr. prostitute.:D---Yes, I hear what you guys are saying,but I'm not going to change my opinions any time soon. To each their own.

[Finance Guy]

It sounds to me like some people here have a good idea of the benefits of a lease.

It also sounds to me like some people have out of date financial information or information that has not been presented well.

Today there are leases called "Equipment Finance Agreements" that do not require you to go full term. They do not have early buyout penalties. If you have a 48 month term and want to sell it after 3 years go for it, you are NOT held liable for the remaining payments.

If anyone needs information give me a call.

Todd

[DirtyWorks]

Finance Guy, What are the penalties? If I enter into a four year lease and realise that I need a bigger machine can I "upgrade"? What happens if there is a major repair needed after the three year maufacturer warranty? Do I have to make payments for the last year and walk away from it? Do I have to keep it to a certain standard besides operational? Who determines "fair wear and tear" If it is a good and profitable machine, are you saying that I get to purchase it for 10% of the original value of equipment or 10% of total loan after 48 months? Is the downside that you have paid 90% of a piece of equipment only to start over again with a new fully warrented piece and the upside not having to worry about finding a qualified buyer who is looking for exactly that piece? How bad does it damage your credit if the machine has to go back due to failing/bad business? If it is "off balance" financing is there any equity on the part of my business if I decide to buy out my partner? All hypothetical questions I know. Was just thinking aloud. Thanks for the reply

[Finance Guy]

Hey DirtyWorks,

Lot's to cover here...

If you qualify for a Manifest (US Bank) equipment finance agreement you can usually choose your term and whether you want a residual or not on the back end. Let's say you want a 4 year term with no residual... You make your payments and after three years you want to upgrade. You can sell the machine you have and Manifest has a very small fee to release the UCC filings and opt out paperwork and you are done. You can take the money from the sale and put it towards a bigger machine and commence another EFA. You can also make all 48 payments and the machine is yours. Repairs are up to you. When the lease ends and you choose to return the machine there is not an inspection. There is no penalty for exsessive hours or wear and tear. If you had chosen to have a 10% residual on the end you can simply buy the machine for 10% of the original price. Now keep in mind your monthly payments would have been lower because in simple terms the bank lowers your monthly payments and puts it on the back end. If your business fails and you default on your payments then yes it will be a negative on your credit. Off balance sheet means the machine is neither an asset nor a liability. It would be a rental as far as the IRS determines.

Hoped this answered some of your questions...

Todd

[Countryboy]

Welcome to Heavy Equipment Forums DirtyWorks! :drinkup

[greywynd]

Finance guy, sent you an email....thanks for any assistance you can provide!

[knucklehead98]

I ave entertained the thought of going into business for myself. One of the many problems is that I have poor credit. What would you recomend, leasing or buying.

[jmac]

.Things to think about when leasing:

The rate
the term
the residual
ucc filings
blanket liens
buy out.

all these are why most are scarred of a lease because they can vary so much from lease to lease. A bank note is cut and dry.

rate (fixed)
term

I think you have to take it case by case and get the best deal you can from both and compare. Some may not get a bank to do a term note at a fixed rate so a lease is the only option. From a tax stand point you deduct it one way or the other, just make sure you depreciate the total amount borrowed or paid to buy the machine not the purchase price, and if the term note is not at a good interest rate like you can get now 6% fixed then a lease could be better, but if you can borrow money at 6% fixed, no ucc, blanket liens, 60 to 72 month term then the bank looks pretty good, again it all depends on your credit and what each can do for you, every situation is different

[Finance Guy]

From finance class 101...

" Lease what depreciates; Buy what appreciates."

Bottom Line.

[Orchard Ex]

From finance class 101...

" Lease what depreciates; Buy what appreciates."

Bottom Line.

Oh, well then if that's the Bottom Line...
I'd like a 24 hr lease on a large pepperoni pizza and a 6 pack. Upon turn in they'll be in the same condition as that advice. Bottom line.

:rolleyes::rolleyes:

Buying, Leasing, Renting, Beg Borrow or Stealing (OK not stealing) can all be the "best" acquisition method depending on the company and the specific situation.

[Finance Guy]

Orchard Ex... Make it a family size and an invite. :)

[Orchard Ex]

:thumbsupCome on over, I just called it in :beerchug

[Willis Bushogin]

Orchard Ex... Make it a family size and an invite. :)

Glad to have you on this site, to answer all the questions. This is just a remark, to the leasing question. My accountant told me to lease everything, dont pay cash for it (equipment) I dont even try to keep up with all the tax stuff, but he told me the lease to buy loans, were almost 100% tax write off. No I'm not a big company, just trying to get started, like a bunch of other people. When I started 4 years ago, I borrowed the money to buy my backhoe, from a leasing company ($20,000.00) about 3 years ago I borrowed the money, from the same leasing company for a dozer. To make the story short, I paid off the backhoe, then I paid the dozer off 4 months early. Whatever kind of lease I had, it was a $1.00 buy out. I had good success with these two leases and I just got two more leases for a mulching machine and truck to pull it.
Im sure its a lot of difference in the auto/truck lease from a car lot, verses, equipment leases
Not sure if this helps anyone, but its the way I went.

[Finance Guy]

Willis Bushogin... Great information. Good to hear!

And yes, equipment leases are completely different than an auto lease.

Todd

[Sparffo]

tuney443... I finance small businesses everyday and, respectfully, I have no idea what you are talking about.

FG

if i understud what tuney443 was talking about, was thet you can't do modifications on your leased equipment! like welding a demolitionshield to the cab (example).
I have got offers on leasing BROKK demolition robots, but that sounds crazy to me :Pointhead they have to be working when the lease ends :D

[Finance Guy]

if i understud what tuney443 was talking about, was thet you can't do modifications on your leased equipment! like welding a demolitionshield to the cab (example).
I have got offers on leasing BROKK demolition robots, but that sounds crazy to me :Pointhead they have to be working when the lease ends :D

This is news to me...

Todd "Finance Guy"

[Sparffo]

This is news to me...

Todd "Finance Guy"

but thanks to you Todd!

I will talk to my accountant next week and see how it works here in Finland, the tax issues can be different.
on excavators and loaders the leasing could work well

[Finance Person]

.Things to think about when leasing:

The rate
the term
the residual
ucc filings
blanket liens
buy out.

all these are why most are scarred of a lease because they can vary so much from lease to lease. A bank note is cut and dry.

rate (fixed)
term

I think you have to take it case by case and get the best deal you can from both and compare. Some may not get a bank to do a term note at a fixed rate so a lease is the only option. From a tax stand point you deduct it one way or the other, just make sure you depreciate the total amount borrowed or paid to buy the machine not the purchase price, and if the term note is not at a good interest rate like you can get now 6% fixed then a lease could be better, but if you can borrow money at 6% fixed, no ucc, blanket liens, 60 to 72 month term then the bank looks pretty good, again it all depends on your credit and what each can do for you, every situation is different

A bank note is far from cut and dry. I highly recommend you read through a bank loan contract in its entirety. Most are usually 15 pages long which probably include blanket liens on your business. On top of that a loan will show up on your personal credit as exposure which could potentially limit your borrowing power in the future. Multiple equipment loans or exposure with a bank can halt your business's borrowing power in times of need or crisis. Also with a loan you pay most of the interest off in the first 2 years so when you look to buy out early of 5 year term you end up paying the principal which is the probably the remaining balance if one were to look out for an early buyout.

A bank loan is a bigger risk then you think!





A bank note is far from cut and dry.

[roddyo]

How about a short term lease with a buyout after 12 months? What kind of terms on something like that.

[Finance Person]

There are lease options where you can lease purchase the equipment for 12 months and set your buyout to either a $1, FMV(Fair Market Value), 10% or 20% buyout. The question here is why do you want to pay equipment off that is going to depreciate? Would you pre pay an employee? Of course not! Its makes more sense to put the equipment on lease for at least 24 months or more on an equipment $15,000 or over and let it make you money. The lease will stay off your personal credit, 100% tax deductable, payments are fixed on a schedule to simply expenses, offer hedge against interest rates, protects business from inflation and allows companies to project future cash outlays with greater accuracy.

Furthermore most banks are not giving 100% loans anymore especially on used equipment. All leases finance up to 110% which includes soft cost like delivery.

The golden rule here is to preserve your bank lines, invest in cash on items that appreciate and lease equipment that depreciates, especially if the 2009 stimulus plan gives you a great incentive for it.

The 2009 Economic Stimulus Plan calls for equipment purchases incentives include a special 50-percent equipment depreciation allowance for 2009 purchases and on top of that your Tax section 179 expense election amounts doubles for 2008 to $250,000 equipment purchases. To qualify for the 50 percent special depreciation allowance under the new law, the equipment must be placed in service after Dec. 31, 2008, but generally before Jan. 1, 2010. This is the year to buy!!!!!

[Orchard Ex]

The 2009 Economic Stimulus Plan calls for equipment purchases incentives include a special 50-percent equipment depreciation allowance for 2009 purchases and on top of that your Tax section 179 expense election amounts doubles for 2008 to $250,000 equipment purchases. To qualify for the 50 percent special depreciation allowance under the new law, the equipment must be placed in service after Dec. 31, 2008, but generally before Jan. 1, 2010. This is the year to buy!!!!!

Are you saying that you can depreciate leased equipment?

[roddyo]

There are lease options where you can lease purchase the equipment for 12 months and set your buyout to either a $1, FMV(Fair Market Value), 10% or 20% buyout. The question here is why do you want to pay equipment off that is going to depreciate? Would you pre pay an employee? Of course not! Its makes more sense to put the equipment on lease for at least 24 months or more on an equipment $15,000 or over and let it make you money. The lease will stay off your personal credit, 100% tax deductable, payments are fixed on a schedule to simply expenses, offer hedge against interest rates, protects business from inflation and allows companies to project future cash outlays with greater accuracy.

Furthermore most banks are not giving 100% loans anymore especially on used equipment. All leases finance up to 110% which includes soft cost like delivery.

The golden rule here is to preserve your bank lines, invest in cash on items that appreciate and lease equipment that depreciates, especially if the 2009 stimulus plan gives you a great incentive for it.

The 2009 Economic Stimulus Plan calls for equipment purchases incentives include a special 50-percent equipment depreciation allowance for 2009 purchases and on top of that your Tax section 179 expense election amounts doubles for 2008 to $250,000 equipment purchases. To qualify for the 50 percent special depreciation allowance under the new law, the equipment must be placed in service after Dec. 31, 2008, but generally before Jan. 1, 2010. This is the year to buy!!!!!

If I want a $100,000.00 excavator on a 12 month lease with around a $75,000.00 FMV what am I looking at payment wise?

[Finance Person]

Below is A through C credit price ranges.

Equipment Cost $100,000
12 month term payment: $8784.87 to $9167.99
24 month term payment: $4607.34 to $4992.42
36 month term payment: $3221.43 to $3615.23
48 month term payment: $2533.38 to $2937.50
60 month term payment: $2124.44 to $2538.47

[PSDF350]

What is a-c credit?

[JDOFMEMI]

Like a score card of your credit rating.
"A" credit is really good, and gets you a lower interest rate, "C" credit is fair, and gets you a higher rate. Worse than "C" likely gets you an answer of no thanks.

[PSDF350]

Like a score card of your credit rating.
"A" credit is really good, and gets you a lower interest rate, "C" credit is fair, and gets you a higher rate. Worse than "C" likely gets you an answer of no thanks.

Kinda figuired that. My question is more what is A B and C.

[roddyo]

Below is A through C credit price ranges.

Equipment Cost $100,000
12 month term payment: $8784.87 to $9167.99
24 month term payment: $4607.34 to $4992.42
36 month term payment: $3221.43 to $3615.23
48 month term payment: $2533.38 to $2937.50
60 month term payment: $2124.44 to $2538.47

What's the buyout at the end of the lease?

[WCM]

to: stuvecorp
I had used case credit in the past, they were great. Now it seems like they do not want to loan out money. I have a history with them and now they think I am a risk. The same business for over ten years and I paid my loan with them off early. Go figure???

[Lease Options]

to: stuvecorp
I had used case credit in the past, they were great. Now it seems like they do not want to loan out money. I have a history with them and now they think I am a risk. The same business for over ten years and I paid my loan with them off early. Go figure???

Since the economy has been so chaotic, many lenders have changed their rules. Remember the Golden Rule: He who has the gold, makes the rules.

That is why leasing is a great alternative. Not many banks want to lend on anything right now. Keep your bank lines intact. Also, speaking with a knowledgeable leasing adviser can make a world of difference.

I'm here if you need any help. :usa

[Landworks]

Finance Guy...Are you with Capital Funding Group? Is Mel still with you guys?