Capital financing for equipment requires a thoughtful decision-making process. Today, a full deck of variables like technological obsolesces, economic useful life, equipment’s future value and resale-ability and more, makes structuring equipment financing transactions both a financial art and science. Amid the complexity, you can still find the right solution for your business, and—as always—Liberty commercial financing is here to help.
First Amendment Leases offer a unique combination of benefits within your equipment lease options, and may be more fitting for your business.
What is a first amendment lease?
A first amendment lease is a mix between a capital lease and an operating lease. For accounting purposes, a first amendment lease is treated as a capital lease allowing the lessee to depreciate the equipment on their financial statements thereby maximizing EBITDA. However, first amendment leases are treated the same as Operating Leases by the IRS allowing the Lessor to depreciate the equipment on their tax returns and pass a lower effective interest rate on to the Lessee.
In addition, First Amendment Leases have fixed purchase prices at the end of the lease allowing the lessee to purchase the asset at a set amount with no penalty OR continue leasing for another year and then hand it back to the Lessor; effectively allowing the Lessee to defer the ownership decision until the end of the lease term when they will have a better sense of whether or not they want to own the equipment long term.
The flexibility of the First Amendment Lease puts you in greater control of your equipment funding. You can decide if you want to keep your equipment by taking advantage of the purchase option, or you can return your equipment without incurring a penalty after another year of usage. In other lease agreements, the only option is to rent or buy, but not both.
How does this help me?
This is especially useful for companies with large CapEx budgets. With such large expenses, it can be difficult to plan for unforeseen changes in technology, accounting changes to the balance sheet and customer demand. If you decide to rent your equipment, some of your major expenses include: rent rate by time period, delivery costs, and pickup costs—which may experience markups. When purchasing, you must consider the costs of maintenance, insurance, and resale value. A First Amendment Lease can combine the best of both worlds, enabling you to consider your business’ needs in real time.
Running a business isn’t always easy. But financing your operations and equipment doesn’t have to be hard. With the right partner, you can select the right option for your internal and vendor financing, and keep your balance sheet in order.
For more information contact us at 844. 816. 9420