Equipment leasing and finance is not something taught in schools. The largest accounting firms have specialists in equipment leasing because it is so unique. If you are new to equipment leasing, you will gain great insight here. If you are a veteran in the equipment leasing business, you will see different strategies and options that could help you in the future. Please contact us below if you have any question on these items or others.

Not knowing this information is like buying a used car without access to the odometer!!

  • What is the difference between FMV, EFA, $1 buyout, etc?
  • How to analyze a lease
  • 7 “Gotchas” of leasing you must know
  • The Mystery of Interim Rent
  • How airline pricing and lease pricing are the same
  • 5 reasons to offer financing
  • Lease vs. Loan at a glance
  • Favorite Quotes
  • Recommended Reading
  • 9 Questions to ask before signing a lease

5 Reasons to Offer Equipment Financing

(Another arrow in your quiver)

Golden Gate Equipment Finance develops financing solutions for small and middle market companies for the sales and acquisition of equipment and value-added services. You wil recieve tailored equipment financing and leasing programs for manufacturers, distributors, resellers, dealers & systems integrators that are designed to help you increase your top and bottom line performance. We operate as your in-house finance company.

  • Positions you as a full service provider
    • Promotes you from an order taker to solution provider
  • Your customer needs financing but doesn’t think to ask
    • 2/3 of all equipment sold is financed
  • Financing puts focus on the payment
    • Customer thinks of affordable monthly payments
  • Financing builds bigger deals
    • Customer can bundle more things into the purchase package
  • Promotions can fuel more sales
    • A 90 day deferral on the first payment can be used for promotions
  • BONUS ITEM: Financing helps you sell more equipment!!!!
    (Think of Ally (formerly GMAC) and Ford Motor Credit)

5 Reasons to Use Financing

  • Keep cash reserves strong
  • YBundle different vendors into one financing
  • Creates a built in refresh program
  • 100% financing
  • Fixed payments throughout the term or longer

69 Questions for your salespeople to ask

  • Do you plan on paying cash or financing your equipment acquisition?
  • How long do you plan on using the equipment?
  • What will you do with the old equipment?

Each of these three qualifying questions have a strategy behind them (we can explain). Train your salespeople to ask these 3 questions early on to help qualify. Then encourage them to use the “MacKay 66” for the lasting relationship.


Common industry terms and what they mean:

The terminology used within the equipment finance industry can be a little daunting and confusing because many of the terms are not used in everyday language and many times they are used incorrectly. Understanding these terms will help you know exactly what is going on.

An accounting term for leases that have the characteristics of a purchase agreement. A lease is considered a Capital Lease if it has any one of the following characteristics:

  1. Title to the property passes automatically to the lessee at the end of the term.
  2. The lease contains a bargain purchase option.
  3. The lease term is greater than 75% of the estimated useful life of the leased equipment.
  4. The present value of the payments is equal to, or greater than, 90% of the value of the equipment.

An accounting term for leases that have none of characteristics of a Capital Lease.

Term for leases that have the characteristics of a purchase agreement.

  1. Financing the purchase of property, for which title will pass only on the condition the buyer has met certain obligations.
  2. An agreement for the purchase of personal property which treats the lessee as the owner of the property for federal income tax purposes, but clouds the title by a lien until all of the terms and condition of the sale have been met.

A lease, which for tax purposes, fails to meet all of the tests for a conditional sale contract as defined by the IRS. Lessor would qualify for tax benefits of ownership and lessee would claim the lease payments as a tax deduction.
** Definitions are from the Certified Lease Professionals’ Handbook. Please check with your tax and legal experts for advice.

A Capital Lease using “GAAP” terms & Conditional Sale using “tax” terms, whereby the lessee can purchase the equipment at the end of the term for $1.

Where the lessee has the option at the end of the lease to either return, renew or purchase the equipment at fair market value. In “GAAP” terms, this could be a Capital or Operating lease. In “tax” terms, it would be a True Lease.

The lessee guaranties the residual value on a vehicle lease yet the lessor books a True Lease for tax purposes.

From an end-user’s perspective an EFA is very similar to a loan. Title will vest with the end user from the financing’s inception. An EFA only uses the equipment as collateral for the financing where a loan from a bank will often have a lien on all assets.

Beware of the “Gotchas”

The lowest lease price looks tempting but beware of the Gotchas!!

  1. Below market pricing
    (the reasons for items 2-7)
  2. Excessive interim rent
  3. Manipulated start dates
  4. Onerous end of lease return provisions
  5. Restrictive end of term notice periods (even on $1 buyouts)
  6. All-or-nothing return provisions
  7. Excessive deposits required up front

How airline ticket pricing can be like lease pricing

Have you ever wondered how with some airlines the price of the ticket sounded so good until you saw the final price, after being charged for everything from luggage, to seat reservation (even the middle seat for this writer), to even a carry on bag. Heaven forbid you need to make a reservation change (except Southwest). Equipment leasing unfortunately can have some of the same traits. As in airline ticketing, beware of the lowest price because there could me more charges coming. The overall value is what you should be looking at, not just the monthly payment. Charges that can unexpectedly come up later in a lease that you can ask about up front are:

  • Will there be interim rent?
  • What is the late payment grace period?
  • What are the end of lease return requirements?
  • Is there an end of lease notice period and what is it?
  • How are property tax and insurance handled?
  • Are there any documentation or miscellaneous fees?
  • Can the lease automatically renew?

While each item on their own might not be significant, for a leasing company that priced the deal low at the beginning that needs to make up that shortfall later, aggressively enforcing these items can help them make up their shortfall, hence the relation to airline ticket pricing.

As all airlines are not alike, neither are all equipment leasing companies.

Lease vs. Cash

Cash Lease
Cash Flow Purchasing with cash immediately decreases available liquid assets. No or low upfront costs, deferred options and custom structures mean payments match cash flow.
Credit Line Depleting cash reserves may effect credit. A lease should not effect your line of credit.
Equipment Value The owner bears all the risk of equipment obsolescence and reduction in equipment value. Risk of obsolescence is on the lessor when there is no obligation to own the equipment at the end of the lease.
Soft Costs Covering soft costs such as tax, shipping, installation, etc., erode available cash. Leasing may cover all costs (100% financing) so you avoid a large outlay.
Inflation Purchasing today means you pay with today’s dollars at today’s value. Payments will be fixed. This means you pay with next year’s inflated dollars and take advantage of inflation.
Tax & Liability Owners must manage asset liabilities on their books. GAAP accounting standards require equipment to appear as an asset with corresponding liability on the balance sheet. With tax leases, lessee may claim the lease payment as a deduction. Tax leases may use accelerated depreciation resulting in larger tax deductions. Tax savings can be substantial.
Equipment Upgrades Owners must manage the disposal of outdated equipment. Leasing may allow for easy upgrades helping you avoid obsolescence.

Lease vs. Loan

Lease Topic Loan
No Requires down payment Yes
Lower Monthly payment size is… Higher
Many Stucturing and payment options Few
None Impact on credit line Reduces
Yes Ability to bundle transactions No
Lower Impact on cash flows… Higher
No Pledge other assets as collateral Yes
Leasing Company Risk of owning obsolete technology belongs to…. You
Leasing Company Assets tracked by…. You
Purchase, return or renew Equipment end of term options… Keep

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