FAQs
Leasing is a contract in which one party conveys the use of an asset to another party for a specific period of time at a predetermined rate. There are three parties to a lease contract:
Lessee – User of the Equipment
Lessor – Owner of the Equipment
Vendor or Supplier of Equipment
In all cases with regards to leasing with Kingswood Leasing, all our contracts are on a “lease to own basis”, with an agreed upon purchase option at the end of the lease.
Lessees vary widely from small, one-person operations to Fortune 500 corporations. And the kinds of equipment being leased are just as diverse.
Transactions range from a few thousand dollars worth of equipment to multi-million-dollar facilities, telecommunications systems, medical equipment, office systems, computers, commercial airliners, and transportation fleets. There is no end to the types of equipment that companies lease.
In 1998 it is estimated that over 183 billion dollars worth of new equipment was acquired through leasing. In fact, approximately 80% of all businesses use leasing to acquire some or all of the machinery and equipment they use.
The type of equipment you want to lease, the term, and whether you want to keep the equipment at the end of the term will all be factors in choosing a lease.
Lessees may lease one piece of equipment at a time or many items with a single lease from one or multiple vendors.
Companies that continually acquire equipment may use a master lease to avoid executing a new contract every acquisition. Two common types of leases are Operating Leases and Finance Leases.
With an operating lease, the term is shorter than the expected useful life of the equipment. Rental payments do not cover the equipment cost for the lessor during the initial lease term. This type of lease is popular for high-tech equipment, because shorter term leases help equipment users stay ahead of equipment obsolescence. The lessor uses its equipment remarketing expertise to subsequently find other users for the returned equipment, something the typical equipment user does not have time or ability to do.
With a finance lease, the term is longer and generally covers the useful life of the equipment. Rentals tend to be lower because of the longer term and less residual risk.
From an accounting standpoint, an operating lease is the simplest type of lease for you to account for because you only expense rentals. There is no requirement to add the asset to the balance sheet, as long as the footnotes to the financial statements indicate the amount of your firm’s lease rental obligations.
Smaller equipment leases tend to be more standardized . Above that cost range – several hundred thousand into the millions – variations appear more frequently. A leveraged lease on a big ticket acquisition such as an airplane, may include several customized provisions and options that would not appear in a typical lease for a smaller amount. Therefore, flexibility is a product of the size of the lease.
Almost any type of equipment can be leased. As the lessee, you deal with the lessor concerning the term of the lease and the rate. Ancillary expenses – such as taxes, service, insurance and maintenance – usually are the responsibility of the lessee and are not deductible from the rental payment. These costs can be included in the lease at the customer request. Please call for more information.
There are three ways you can acquire equipment through leasing:
You can select and order the equipment and then seek financing through a lessor.
You can select the equipment by working with a vendor or a manufacturer, which offers leasing through its own subsidiary.
You can obtain the equipment directly through a lessor.
In most cases, the lessee selects and orders the equipment before contacting the lessor. Unless provided for in the provisions of the lease, lessors don’t normally provide equipment warranties. Equipment warranties are between the lessee and the manufacturer.
By signing the lease, the lessee assigns its purchase rights to the lessor, who already owns or who then buys the equipment as specified by the lessee.
When the equipment is delivered, the lessee formally accepts it and makes sure it meets all specifications. The lessor pays for the equipment, and the lease takes effect.
There are plenty of advantages:
Leasing does not tie up your working capital
You can gain possible tax advantages
Conserves your bank credit lines
Provides 100% financing
Opens a new credit line for future equipment acquisitions
May enable you to expense every penny of your lease payments
You pay a fixed rental payment
You can project costs more accurately
You keep both cash and equipment, therefore generating profits
You can lease almost any type of equipment. Some examples are listed below.
Computers and Software
Rubbish Containers
Highway Equipment
Printing Equipment
Office Equipment
Auto Repair Equipment
Trucks of All Types
Automobiles
Construction Equipment
Restaurant Equipment
Office Furniture
Salon Equipment
And much, much more...
Equipment lease where the lessee has the option to either continue the lease at the renewal rate, or to buy the asset at its FMV at the end of the lease term transferring ownership of the equipment to lessee.
This is the residual buyout established by the lease for end of term options not to exceed 10% of the total lease payback.
A common fee applied to lease contracts along with other types of loans and financing obligations. It is the rent you pay for daily use of equipment between the equipment acceptance and lease start dates. It does not count as a payment. As the bank is obligated to pay the vendor during this period so are you for using the equipment during this time.
At the termination of a standard lease (24, 36, 48, or 60 months) the lessee may purchase the equipment for the agreed upon buyout such as 10%, FMV, or 10%.
When a lease or financial obligation is automatically renewed beyond the original lease term for additional periods of time unless specific notification is provided to the lender. This may require you to put in writing 30 or 60 days prior to the end of the lease, your intention.
