A true lease is an agreement by a customer (lessee) to pay a monthly rent for a specific amount of time for the right to use property owned by a lessor. The lessee generally does not own the property, but is usually responsible for maintenance, insurance and all other costs of ownership. At the end of the lease, the lessee typically has the option to:
Renew the lease
Upgrade the equipment
Return the equipment
What are the benefits of a True lease?
The lessee’s payments are typically lower than the payments under a $1.00 Out lease and may be entitled to tax or accounting benefits. Some benefits of a True lease include:
The lessor holds a residual position in the equipment and maintains part of the risk of ownership
At the end of the lease, the lessee will have the option to:
Renew the lease
Upgrade to new equipment
Return the equipment to the lessor
Purchase the equipment (if offered by the lessor)
What is a $1.00 Out lease?
A $1.00 Out Lease is an agreement by a lessee to pay a monthly rent for a specific amount of time for the right to use property owned by a lessor. At the end of term, the lessee purchases the property for $1.00 and is usually responsible for maintenance, insurance and all other costs of ownership.
What are the benefits of a $1.00 Out Lease?
Lessee has ownership of the equipment at the end of the lease term and enjoys all the benefits of ownership.
Should I lease or buy?
For many businesses, the use of the equipment (not the ownership) provides the value.
What about financing through my bank?
Bank loans usually cover only the acquisition of tangible assets (i.e. hardware) and typically require a large down payment. Leasing generally does not affect bank lines of credit, which can be used for other business purposes.
What is the interest rate on my lease?
There is not an interest rate associated with a lease payment. The lease payment is a fee charged for the use of equipment and is not made up of principal and interest. The lease payment is a fixed amount that does not fluctuate based on the current interest rate.
What types of businesses can lease equipment?
All types of business entities can lease including corporations, partnerships, proprietorships, profit and non-profit associations, along with state, county and city government agencies (subject to applicable procurement law).
What information is needed on a lease application?
There are key sections of data required on a lease application.
General information: information about the business (name, location, bank and trade references) are required. Lessors may obtain reports from credit reporting agencies (i.e. Dun & Bradstreet) as needed.
Personal information: this data may be necessary on the principal(s) of the company depending on how long the company has been in business. Personal information may also be required if the business is structured as a proprietorship, partnership, close corporation, limited partnership or limited liability partnership.
Financial statements: this information is likely to be requested with larger transactions or if there is insufficient credit report information to determine a company’s financial strength.
How are lease payments determined?
The monthly payment is typically based on:
Term of the lease
Cost of the equipment
End of term lease options
What is immediate billing?
Immediate billing occurs when the customer’s invoice is sent out the day the lease starts and is due upon receipt.
Can the lease be cancelled or paid off early?
A lease cannot be cancelled early, however, a lease may be paid off prior to the end of the lease term or the lessee may trade-up the equipment under certain conditions such as when equipment under the current lease is replaced with new equipment from the original supplier and a new lease is established with the same lessor.
Can I have one invoice with multiple leases?
Yes, we can consolidate your billing and include multiple leases on one invoice.
Can I add equipment to my existing lease?
Yes, provided we make a favorable determination of customer credit worthiness, once you have an active lease contract and an approved credit line, equipment can be easily added or upgraded. Lease payments are simply adjusted and can often be made co-terminus with the original lease term, of course, all transactions are subject to our approval.
Is sales tax charged on leased equipment?
Yes, however, tax requirements vary depending on location of the equipment and the term of the lease option. Some states include an up-front sales tax on equipment and some states charge sales tax on each lease payment.
What is personal property tax?
The primary characteristic of personal property is mobility. It includes machinery, equipment, supplies and furniture. Personal property tax applies to personal property used when conducting business or to other personal property not exempt by law. Household goods and personal effects are often exempt.
Who is responsible for personal property tax?
The lessee is responsible for payment of personal property taxes during the term.
When is personal property tax invoiced?
Personal property tax can be invoiced at various intervals such as monthly, quarterly or semi-annually.
Why is a personal guaranty sometimes required even though the lessee is a corporation?
Guaranties are sometimes required from closely held corporations and other privately owned companies because the company’s credit is based on the value the owners bring in the way of business expertise and personal credit strength. Since these businesses can manage their finances at their own discretion, without the financer’s knowledge or consent, the financing company protects its investment by obtaining the owner’s guaranty.
Is equipment insurance required?
Yes, equipment insurance is required.
What happens at the end of the lease term?
The typical end-of-lease options are:
True Lease: lessee can purchase the equipment for an amount as determined by the lessor, renew the lease, upgrade to new equipment or return the equipment to the lessor.
$1.00 Out Lease: lessee can purchase the equipment for $1.00 at the end of the lease term.
Specie Capital | 5870 Merle Hay Road, PO Box 72, Johnston, IA 50131 | p (515) 276-0706 | f (515) 334-5023
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