| FAQs |
Q. How do I decide if leasing fits my company’s needs?
A. With a market that is well over $200 billion per year, most major
corporations conduct some form of leasing (see Ten Reasons to
Lease). The first step is to decide what equipment you may want to
own “forever” and what might be more practical to lease. If you do
this objectively, you will probably find a relatively small pool falling in
the “must own” category. For example, many people are surprised to
learn that the major U.S. airlines lease most of their aircraft. At $30
to $165 million per plane, the airlines have decided to save their
cash and borrowing power for operating requirements.
If you’re considering a large lease transaction, you many want to do
a formal “lease versus a “purchase analysis”, which compares after
tax cost of ownership for the two alternatives and estimates the
residual value required for your firm to be neutral as to which choice
is made. <back>
Q. What is an equipment lease?
A. Essentially, a lease is a rental agreement in which one party (the
lessor) maintains ownership of an asset and another party (the
lessee) uses it in its business activities. In today’s world, most leases
are “net leases”, which means that the lessee pays for maintenance,
utilities or taxes related to usage (sales tax, property tax, etc.) <back>
Q. What kind of equipment can be leased from LGR?
A. Business equipment of almost every kind is eligible to be leased.
LGR offers leases for a wide range of equipment in a number of
different industries. However, we are restricted from leasing
consumer goods, passenger vehicles, light trucks and real estate.
<back>
Q. Can I select my own equipment and vendor?
A. Yes! By all means, negotiate the best cash price you can get!!
Call us if you need any help. <back>
Q. Can I pay off the lease early?
A. Yes! A pay off can be calculated at any time during the lease
term. <back>
Q. Can I write off my lease payments?
A. Yes! The majority of our customers do expense their lease rental
payments. Ask your accountant for more up-to-date information on
leasing tax advantages. <back>
Q. Are there accounting benefits to leasing?
A. The biggest benefit is the ability to get certain leases off the
balance sheet by virtue of compliance with the FASB 13 tests. Lease
obligations are typically not on a firm’s balance sheet but are listed in
the Footnote section of the financials. This treatment can not only
improve financial ratios, but other performance criteria such as
Return on Assets, etc. For most high technology assets, a lease also
tends to avoid future accounting surprises that can result when
purchased assets are sold for less than their current book value. In
other words, leasing high technology equipment tends to track with
real costs / market values better that the depreciation tables, which
were setup many years ago. This is even true when accelerated
depreciation such as MACRS is used. <back>
Q. How long does a lease last?
A. Just about as long as you need it to. Typically, assets which have
a long useful life, such as railcars, barges and the like, have
relatively long lease terms of 10 years or more. At the other end of
the scale, assets which tend to become obsolete in a hurry, such as
many high tech devices, usually have lease terms of two to five
years. The difference in terms is partly driven by how long the lessee
will want to use the assets without moving on to newer equipment or
technologies. The term difference is also driven by accounting
guidelines, which limit the length of certain leases to no longer than
75 percent of their useful life. <back>
Q. What is the “Purchase Option” and why is it important?
A. The purchase option is a reasonable estimate of the Fair Market
Value of the equipment at the option date determined at the
beginning of the lease. In order for your company to deduct lease
payments as an expense, a purchase option must be calculated and
represent at true estimate of the Fair Market Value.
A. With a market that is well over $200 billion per year, most major
corporations conduct some form of leasing (see Ten Reasons to
Lease). The first step is to decide what equipment you may want to
own “forever” and what might be more practical to lease. If you do
this objectively, you will probably find a relatively small pool falling in
the “must own” category. For example, many people are surprised to
learn that the major U.S. airlines lease most of their aircraft. At $30
to $165 million per plane, the airlines have decided to save their
cash and borrowing power for operating requirements.
If you’re considering a large lease transaction, you many want to do
a formal “lease versus a “purchase analysis”, which compares after
tax cost of ownership for the two alternatives and estimates the
residual value required for your firm to be neutral as to which choice
is made. <back>
Q. What is an equipment lease?
A. Essentially, a lease is a rental agreement in which one party (the
lessor) maintains ownership of an asset and another party (the
lessee) uses it in its business activities. In today’s world, most leases
are “net leases”, which means that the lessee pays for maintenance,
utilities or taxes related to usage (sales tax, property tax, etc.) <back>
Q. What kind of equipment can be leased from LGR?
A. Business equipment of almost every kind is eligible to be leased.
LGR offers leases for a wide range of equipment in a number of
different industries. However, we are restricted from leasing
consumer goods, passenger vehicles, light trucks and real estate.
<back>
Q. Can I select my own equipment and vendor?
A. Yes! By all means, negotiate the best cash price you can get!!
Call us if you need any help. <back>
Q. Can I pay off the lease early?
A. Yes! A pay off can be calculated at any time during the lease
term. <back>
Q. Can I write off my lease payments?
A. Yes! The majority of our customers do expense their lease rental
payments. Ask your accountant for more up-to-date information on
leasing tax advantages. <back>
Q. Are there accounting benefits to leasing?
A. The biggest benefit is the ability to get certain leases off the
balance sheet by virtue of compliance with the FASB 13 tests. Lease
obligations are typically not on a firm’s balance sheet but are listed in
the Footnote section of the financials. This treatment can not only
improve financial ratios, but other performance criteria such as
Return on Assets, etc. For most high technology assets, a lease also
tends to avoid future accounting surprises that can result when
purchased assets are sold for less than their current book value. In
other words, leasing high technology equipment tends to track with
real costs / market values better that the depreciation tables, which
were setup many years ago. This is even true when accelerated
depreciation such as MACRS is used. <back>
Q. How long does a lease last?
A. Just about as long as you need it to. Typically, assets which have
a long useful life, such as railcars, barges and the like, have
relatively long lease terms of 10 years or more. At the other end of
the scale, assets which tend to become obsolete in a hurry, such as
many high tech devices, usually have lease terms of two to five
years. The difference in terms is partly driven by how long the lessee
will want to use the assets without moving on to newer equipment or
technologies. The term difference is also driven by accounting
guidelines, which limit the length of certain leases to no longer than
75 percent of their useful life. <back>
Q. What is the “Purchase Option” and why is it important?
A. The purchase option is a reasonable estimate of the Fair Market
Value of the equipment at the option date determined at the
beginning of the lease. In order for your company to deduct lease
payments as an expense, a purchase option must be calculated and
represent at true estimate of the Fair Market Value.
FREQUENTLY ASKED QUESTIONS
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