Leasing Resources

LEASE TYPES

True Lease: A true lease offers the Lessee lower lease payments when the Lessor retains the depreciation benefits and other tax incentives related to the equipment. The purchase option at maturity in a True Lease is usually the Fair Market Value of the equipment.

Operating Lease: A lease which qualifies for accounting purposes under FASB 13 as an operating lease, based on the following primary four criteria:  (1) The lease term does not exceed 75% of the useful life of the equipment, (2)  Title to the equipment does not automatically pass to the lessee at the end of the lease term, (3) The lease is not have a bargain purchase option, and (4) The present value of the minimum rentals must be less than 90% of the equipment cost.  An operating lease adds no balance sheet asset or liability and the rental payments are treated as an operating expense. A True Lease is not necessarily an Operating Lease. 

Capital Lease: A lease which is not classified for accounting purposes as an operating lease is classified as a capital lease.  With a capital lease, the leased asset and related lease liability are shown on the balance sheet. 

$1 Purchase Option: This type of lease enables the business to own the leased equipment at the end of the lease for a nominal amount ($1).

10% Purchase Option: This type of lease also enables the business to own the leased equipment at the end of the lease term and offers a lower monthly payment than the $1 Purchase Option does.

TRAC Lease: A terminal Rental Adjustment Clause ("TRAC") is a type of True Lease limited to titled motor vehicles used in a commercial business. A value of the collateral is stated in the lease which eliminates the Lessee's exposure to a FMV purchase price at the end of the lease. After the equipment is sold, the Lessee receives any value above the TRAC but is required to make up any shortfall in that value to the Lessor.

Tax Exempt Leases: For 501(c) non-profit organizations including churches, hospitals and fraternal organizations. A Tax Exempt Lease allows the non-profit organization to match payments to budget constraints, contributions or useful life of the equipment. Financing is 100% of the equipment cost.

Municipal Leases: Allows governmental entities or political subdivisions (Section 103 entities) to acquire essential use equipment without costly and lengthy bond issue referendums. Allows the lease to conserve cash and manage annual budgets. Lessee becomes the owner of the equipment at the end of the lease term for a bargain purchase option.