Introduction – Getting the Best Equipment Lease Deal

Introduction

This book is a guidebook for any business, small to large, considering acquiring equipment through a leasing alternative. It explains the pros and cons of leasing equipment, as well as how leasing and financing companies operate and the pitfalls to watch out for, provides guidance on how to financially evaluate lease offers and compare them to other financing alternatives. It also discusses the various business, accounting, and tax implications. Included are practical tips, recommendations, and strategies for getting the best lease deal; a legal and business explanation of all relevant documents; and strategies to negotiate the relevant documents to get the best terms. Very simply, this book is a comprehensive guidebook tailored expressly for the business lessee—with up-to-date suggestions, insider tips, and observations.

So, if you are considering leasing needed equipment and you want to have the best available leasing information to enable you to get the best possible lease deal, this book is for you. It will, for example, address issues such as:

  • How does the leasing marketplace really work?
  • How does a leasing company operate?
  • What are the leasing profit areas?
  • When is leasing a poor choice?
  • What is the best way for a company to solicit lease bids?
  • Does a lease financing proposal letter really commit a lessor?
  • When will a lease meet the Internal Revenue Service (IRS) requirements?
  • Can a fixed price purchase option be used?
  • How should a lease be analyzed financially?
  • What impact do the new lease accounting rules have?

Unfortunately, because of the many variables that can be involved in a lease decision, the desirability of leasing for, and the lease evaluation criteria used by, one company may be totally inappropriate for another company. This book will, however, provide the reader with a comprehensive working knowledge of the fundamental tools necessary to competently handle any lease situation from start to finish. The relevant issues that must be taken into account in developing a solid financing approach will be identified, described, and explained.

Here is some of what you will find:

Proposal stage: In any lease financing arrangement, the proposal stage is the critical point when the parties establish the transaction’s business parameters. At this stage, you, as a prospective lessee, are in your strongest negotiating position. By taking advantage of some simple techniques recommended by the author, you can, for example, get a below market lease rent.

Documentation: The documentation stage—where your leasing rights and obligations are defined—is another crucial step in the transaction. To be fully aware of what the document risks and obligations are is essential to ensure that the terms and conditions of your lease deal work for you. For example, if you inadvertently assume certain state tax payment obligations, your effective cost of leasing equipment can dramatically increase.

Tax issues: Problems often arise because of lack of understanding of the complex leasing tax issues. If the IRS tax rules are violated, the desired tax benefits treatment may be lost. The original tax guidelines promulgated in 1975 have been restated in two more recent revenue procedures, discussed and explained.

Accounting issues: How a lease must be accounted for should always be a foremost consideration. Improper structuring can cause undesirable accounting treatment. The Financial Accounting Standards Board has promulgated an extensive and complicated set of rules on accounting for leases, which have recently been revised. The existing rules are explained and put into a meaningful and current context for a lessee.

Financial issues: Another key consideration is the financial side of a lease decision. There are many apparent—and some not so apparent—economic advantages and disadvantages to leasing. A prospective lessee can end up making the wrong financing decision by using an incorrect method of analysis. The economic advantages and disadvantages, as well as the methods of financial analysis, are explained so that you as a prospective lessee can determine what your position is or should be.

The business of leasing equipment: How does a lessor reduce their risks and make money in the leasing business? Surprisingly, it is often in ways that are not readily apparent. And, for a prospective lessee, understanding how a lessor makes money will increase its negotiating leverage.

In summary, this book gives the reader a complete grasp of the legal, financial, tax, accounting, and business considerations for leasing, including those that are necessary to evaluate and negotiate the most favorably structured equipment leasing transaction.

Richard M. Contino, Esq.