Conference room for Finance Lease

Finance Lease vs. Operating Lease: Which One Should You Choose?

If you want to get the equipment your business needs quickly, leasing is an option. But which type of lease is best for your company?

Equipment financing can be challenging when you’re running a small business. Your starting capital may not be enough to get the assets you need to outdo your competition. Seeking financing solutions to buy what your business needs can also be difficult, and complex. Fortunately, you have the option to lease instead of buy immediately.

Two of your options are finance leases and operating leases. But what’s the difference between the two?

What is a Financial Lease?

Also known as a capital lease, a financial lease involves creating a contract that entitles a business owner to rent out the temporary use of an asset, mostly equipment. This is usually done over a long period of time.

Pros

  • For accounting purposes, this lease is considered a purchase of an asset for you as a business owner. So you own it on paper, even though you still haven’t paid for it fully.
  • You take the present market value of your asset on your balance sheet. As such, you’re allowed to claim depreciation and reduce your taxable income.
  • You can reduce your taxable income further by claiming interest expense.

The advantages of a financial lease work to reduce your business taxes, and you get to own the equipment you’re paying for all these months. However, it does come with some disadvantages.

Cons

  • A capital lease agreement is classified as debt in your balance sheet. You repay through your lease payments. This increases your debt to equity ratio. Having your company operate more on debt than your wholly-owned funds might scare off your investors, as they may see it as a risky way of operating your business.
  • Another potential disadvantage of the finance lease is that your company has full responsibility for the maintenance of the equipment.
  • You’re also stuck with the pieces of equipment you rent out for the rest of your leasing term. If you’re using electronic tools, like computers, its components may be obsolete within a decade or even just a few years, leaving you at a competitive disadvantage.

What is an Operating Lease?

An operating lease allows you to rent out equipment from a lessee, but unlike a capital lease, you don’t have ownership rights to the asset. This type of lease isn’t included in the company balance sheet as well. At the end of your payment term, you can choose to buy the equipment at market value or return them to your lessor.

This type of lease is often short-term.

Pros

  • Gives you greater flexibility since it’s a short-term lease. If the equipment in your industry tends to become obsolete faster than other industries, an operating lease allows you to upgrade without the big cost.
  • Its tax benefits allow you to deduct the payments you make as an operating expense.
  • Because you’re not renting to own an asset, you’ll generally have to pay less for your monthly payments, compared to capital leasing.

An operating lease is ideal if you’re a business that needs regular upgrades to your equipment. However, it also comes with some downsides.

Cons

  • Because this type of lease allows you to upgrade whenever possible, you may find that you pay more for your equipment in the long run.
  • Although you can deduct your operating lease payments for your tax returns, you still don’t own the asset. As such, you may not be able to claim deductions for the depreciation of your equipment, unlike capital leasing.

Which Lease is the Best Option for Your Business?

Asset acquisition through leases is a practical way to run your business at a manageable cost. But consider your options carefully because finance and operating leases can be complex without factoring in your requirements and tax situation.

Consult with a Regent Capital consultant to ensure you’re getting one that’s favorable for your business.

Regent Capital is a trusted commercial finance company. We turn your real-world financing challenges into success stories and results. Call us today at (888) 901-4207 for details on how we can help your business!

True Tax Lease in a business room

True Tax Lease: How Does It Benefit Your Business?

There are multiple benefits of using a true tax lease to fund your commercial equipment needs. Regents Capital breaks it down for you.

There’s no other way around it: commercial equipment is expensive, especially for small businesses and start-ups. Purchasing equipment is not the only option, though. Equipment leasing is a more manageable way to get the equipment you need while spreading out the costs over a fixed period of time.

Leasing terms typically run from 24 to 72 months. Contracts can run for much longer, too, depending on your business needs. Either way, considering how new technologies are regularly added to commercial equipment, you do not have to worry about being stuck with obsolete equipment in the long run.

If you’re looking into equipment leasing, one of the best options is a true tax lease. And here, Regents Capital breaks down the reasons you should consider getting this type of equipment lease.

How Does a True Tax Lease Work?

A true tax lease is a multi-year equipment leasing option where the lessee gains exclusive use and possession of the equipment throughout the specified period. Ownership rights do not typically pass on to the lessee but at Regents Capital, the end-of-term buyout option is always on the table.

The name “true tax lease” stems from the fact that the lessor takes charge of all accounting requirements and tax benefits. Meanwhile, lessees pay lower upfront costs and can put monthly payments under capital or operating expenses. These payments are typically lower than non-tax leasing options.

Regents’ true tax leases include stretch, skip payment, step payment, and operating leases. Each one has multiple tax advantages. The lease period is also usually shorter than the equipment’s economic life.

Through operating leases and similar leasing options, you can get up to 100% financing for your required equipment. Soft costs like transportation and installation are also included.

How Do Businesses Benefit from a True Tax Lease?

True tax leases are a sensible option for business owners because the leased equipment doesn’t count as a company asset or liability. Yet, because the leased equipment generally counts as a rental expense, it still qualifies for tax incentives. Here are more ways businesses benefit from a true tax lease:

No Bank Restrictions

True tax leases take away the hassle of blanket liens, escalator clauses, restrictive agreements, and other restrictions that are typically linked with traditional lending institutions.

100% Financing Options

Equipment leasing doesn’t only involve the actual equipment. Businesses also have to consider soft costs like delivery and installation which can be covered by a true lease agreement.

Flexible Payment Options

Unlike with finance leases where ownership is transferred to the lessee after the lease term, the lessor retains ownership after a true tax lease. This helps keep monthly payments flexible.

Off-Balance Sheet Financing

The off-balance sheet financing option could count as operating expenses and make your payments 100% tax deductible, instead of just depreciation and interest deductions.

Secure Your Equipment Financing with a Trusted Partner

Regents Capital has direct funding capabilities that change the way businesses finance equipment. And we can provide affordable and transparent financing for your business.

Contact a Regents Agent today and learn about the financial service that works best for you.

New Synthetic Leases for your business

What are Synthetic Leases & How Can They Help Businesses?

Synthetic leases are a method for adjusting accounts and tax books. But what are synthetic leases and what benefits do they offer businesses?

In 2001, businesses were looking for new ways to refine their accounts and tax books. This was especially hard for those with large stakes in real estate developments. Tax books needed to be as streamlined as possible to allow for larger write-offs. And accounts books needed to be as enticing as possible to potential investors.

Many companies turned to the then-novel method of synthetic leases. Synthetic leases were used to fuel large construction projects and draw in investors. It was a popular method for streamlining the books and project an image of strength and profitability. 

However, the Enron Crisis in the earlier part of the century revealed the problems associated with such practices. New laws were passed to better control such effective methods and synthetic leases largely fell out of vogue.

Recently, developments and better legislation have resurrected corporate interest in synthetic leases. But what are synthetic leases and how can they benefit your business?

What is a Synthetic Lease?

A synthetic lease works as a two-man operation. A parent company wants to make their account books look more promising by removing assets that may devalue it. At the same time, they want to improve their tax records by keeping these assets for use. A synthetic lease is off-balance-sheet financing that is classified as a lease for financial purposes and as a loan for tax purposes.

The parent company sets up a special purpose entity, typically another company, that purchases assets.

This special purpose entity, which is still owned by the parent company yet operates as a separate organization, will lease the asset to the parent company. 

The asset and its subsequent effect on accounts and income will fall on the special purpose entity. Meanwhile, the parent company that owns the special purpose entity can use the assets on their tax books. 

But how is this arrangement different from a traditional lease?

Differences Between Synthetic & Traditional Leases

A synthetic lease is used by companies that are seeking off-balance sheet reporting of their asset-based financing as well as the tax benefits of owning the financed asset. The asset is owned by the lessor for accounting purposes but is owned by the lessee for tax purposes. For the parent company/lessee, the depreciation of the asset does not affect net income. The lessee can, however, claim depreciation deductions for tax purposes.

In a traditional lease, a completely separate entity owns the asset in question. All benefits, expenses, and responsibilities (i.e., taxes) associated with asset ownership are assumed by the lessor. The lessor is the owner for tax and accounting purposes. 

But why would companies want to use this process? What’s in it for you if you use synthetic leases?

Why Consider a Synthetic Lease?

Synthetic leases became popular because they allowed companies to tidy up their books and decrease financial obligations associated with certain assets. 

The following are a few of the benefits your business may enjoy when you use synthetic leases. 

  • Because the property was bought and owned by a separate special purpose entity, that entity will have the property in their accounts books. Depreciated properties or properties tied up with legal or financial constraints can be set aside from the parent company’s books.
  • By putting ownership of certain assets under a special purpose entity, the parent company’s accounts book will appear more profitable. This can be used to attract new investors and secure future contracts.
  • Because the parent company still technically owns the special purpose entity, and thus its subsequent properties, they can put the asset they’re leasing into their tax books. This will allow the company to ask for write-offs when the asset devalues over time. 

Synthetic leases offer companies a novel solution to owning property while preventing damage to their projected profitability.

So, when you need your business to attain new assets without major drawbacks, consider setting the groundwork for a synthetic lease today!

Regents Capital works alongside you to help you conquer financial challenges when securing capital.

Email us today partner@regentscapital.com for further details on synthetic leases.

people applying for TRAC Lease

3 Factors to Consider Before Getting a TRAC Lease

Business owners can get a favorable TRAC lease when they negotiate with their lessor. Here, Regents Capital lists factors can be negotiated.

A TRAC lease, also known as a Terminal Rental Adjustment Clause lease, is a trailer and motor vehicle lease that enables adjustments to payment residuals, lengths, and terms while the lease is active. Instead of going through the trouble of getting financing for each trailer, car, or truck, a business owner can negotiate this kind of lease. They will rent the vehicle for a fixed period and has the option to buy it at the conclusion of the lease at an agreed-upon price.

When you are applying for a TRAC lease to meet your business needs, you want to get a favorable deal from your lessor. Here are a few factors that are up for negotiation:

The TRAC Lease Document

The master lease agreement, much like any legal document, has “boilerplate” provisions. Some of them may be negotiable.

One example is the cancellation notice. Many agreements come with boilerplate terms requiring a fixed notice both parties must provide to cancel. This is unnecessary (and up for negotiation) given that the master agreement cannot compel the lessee to lease anything.

Another provision is the state’s laws that will govern the TRAC lease agreement. This is often negotiable. As a lessee, you can cite the laws of your state rather than going with your lessor’s state.

Although boilerplate provisions help save time in negotiations, you should remember to change parts of the agreement to make the TRAC lease more advantageous for your business.

Billing & Payment Terms

You also have the option to negotiate the specific terms for billing. When discussing the agreement, you can make sure that the lessor accurately establishes the in-service date on the document.

Another area that is up for negotiation is the service level agreement. You can work with your lessor on the following details:

  • The billing termination date
  • The adjustment booking date
  • The sale date

Depending on the lender, another billing component you can discuss is the deficit interest charges. This amount isn’t large if you’re just looking at one vehicle unit.

If the agreement involves a fleet of a hundred vehicles, for instance, these charges can add up and turn into a large expense. Depending on the level of competition of the business and the fleet size, your lessor may choose to forgo this additional payment.

End of Term Options

TRAC leases combine all the advantages of leasing while retaining many of the upsides of ownership including the option to purchase the equipment at the end of the lease term. When your TRAC lease ends, you typically have the option to:

  • Purchase the equipment at the end of the lease term at a pre-determined residual agreed to when the lease starts.
  • Continue to lease the equipment at a reduced rate with payments based on the residual value amount.
  • Return the equipment to the lessor.

Depending on your cash flow needs, you can select a higher end-of-term residual amount for a lower monthly payment or keep the end-of-term residual lower to pay more through the stream of payments. This flexibility of payment options makes the TRAC Lease attractive to any business trying to improve their financial performance ratios and better manage their liquidity position and cash flows.

Turn to Regents Capital for Your TRAC Lease Needs

Regents Capital Corporation offers TRAC leases that you can use for over-the-road vehicles, such as trailers, tractors, and trucks. By working with us, you will enjoy flexible payment terms from 24 to 72 months depending on your business needs. You will also avoid compensating balance requirements, blanket liens, rate escalator clauses, restrictive covenants, and other surprises in conventional lending restrictions.

Fill out our contact form today, and we will have one of our agents meet with you to learn about your unique business needs.

Equipment Financing for your business

Equipment Financing: Is It Right for Your Business?

When you need special machinery but don’t have the funds for it, equipment financing is a good option. But is it always the right solution for your business?

Every business uses different types of equipment for its daily operations — from the basic devices, such as mobile phones, tablets, and laptops to more specialized machinery, like diagnostics machines, tractors, and manufacturing equipment.

Industrial machines and equipment can be costly. New or aspiring entrepreneurs rarely have a big budget for advanced equipment. Even established businesses may not have the funds to replace their machinery in case of a breakdown.

These are a few of the instances when equipment financing can help!

When to Consider Equipment Financing or Equipment Loans

Whether you need to invest in specialized vehicles or machinery or purchase computers for a growing team, you need to consider how you can afford this equipment. With an equipment financing loan, you can immediately obtain working capital to lease or buy the equipment you need. Also, you can manage your cash flow seamlessly since this type of financing enables you to spread out your payments over a longer time frame.

Any business can apply for an equipment loan. According to the Equipment Leasing and Financing Association (ELFA), 79 percent of US businesses finance their equipment through leases, loans, and other lines of credit.

Below are some of the common examples of business-related items that you can finance with equipment financing:

  • IT servers, software, and other tech equipment
  • Medical imaging equipment
  • Construction equipment
  • Restaurant equipment like ranges and ovens
  • Farming or heavy agricultural equipment
  • Trucks and other business vehicles

Considerations for Equipment Financing

Before you sign up for a loan, it’s best to know the benefits and disadvantages of applying for one.

Consider the following pros and cons of equipment financing:

  • Pros of equipment loans.
    • Spread the cost of your purchase. For any business owner, cash flow is critical. Equipment purchases, in some cases, can complicate it. With an equipment loan, however, you can spread your cost to prevent cash flow troubles. You can put a certain percent down and pay the annual interest rate within a certain period.
    • Receive funding for the purchase or lease of equipment. Even if you run a well-established business, chances are that you can run short on equipment funds. Fortunately, equipment financing can bridge that gap. Since these loans allow you to borrow money to pay for equipment, you don’t have to wait until you have the money to make important purchases, leases, or repairs.
    • Increase your business’s future sales. If you receive an equipment loan, it can improve your company’s overall productivity. Having the right machine can help you complete orders faster, which may increase the number of customers you can accommodate. In return, this will boost your bottom line.
  • Cons of equipment loans.
    • Higher rates than traditional loans. Equipment financing typically offers favorable, fixed interest rates. But if you have a good credit history, you may find lower interest rates when you take out traditional loans instead.
    • Usage is restricted to equipment. Equipment financing can only be used for the equipment you need. This means you can’t use the money to cover rent, payroll expenses, or anything else.

Regents Capital Can Find You the Perfect Equipment Loan for Your Business Needs

There are many considerations when it comes to applying for an equipment financing loan. If you need guidance on the type of loan or are actively looking for an equipment financing loan, Regents Capital Corporation is at your service.

Contact us today.

Leased Medical Equipment

When Is Leasing Better Than Buying In The Medical Industry?

The cost of acquiring brand-new medical equipment is often too great for medical institutions to shoulder, even with financing options for direct purchases. Fortunately, there is a sound alternative for small hospitals and practices that need medical equipment but have limited capital resources and cannot afford to buy them: healthcare equipment leasing.

Buying equipment offers benefits like warranty privileges, post-sales services, access to new technology, and insurance claims perks. But while it is understandable for an institution to aim for equipment ownership, there are situations when renting is the wiser choice.

Here are a few of the times when renting might just benefit medical practices and hospitals more:

When Hospitals Want to Raise the Quality of Their Healthcare Services with New Equipment but Have a Limited Budget

Hospitals are duty-bound to provide the best possible services to their patients. Part of that responsibility is to obtain modern, high-quality, and high-performing medical equipment.

The accuracy of diagnostic tests, timely discovery of results, and efficacy of the treatment are highly dependent on the reliability of medical tools and equipment, after all. If hospital revenues are insufficient and financing is still an expensive option, leasing is the best answer.

When Hospitals Need to Modernize & Take Advantage of the Latest Medical Equipment Technology While Keeping Costs Low

The upfront costs for medical equipment leasing are significantly less than the lump sum payment required for new equipment acquisitions. Monthly rental fees are also lower than loan repayment rates for direct-purchase medical equipment financing.

Moreover, renting saves practices and small hospitals from the double burden of paying for the maintenance and other scheduled services while paying off the equipment itself. Leasing is, therefore, more feasible if hospitals need to manage their cash flows and allocate liquid resources over a broad scope of needs (e.g., utilities, salaries, supplies, and operational costs).

When Hospitals Want to Protect Their Financial Health from Potential Losses by Upgrading Old & Obsolete Medical Equipment

Medical technology evolves, and its pace keeps getting faster. A brand-new piece of equipment today could be considered outdated in just two or three years. If a hospital buys it, the institution may be forced to maximize and keep using the equipment even though newer and more efficient versions are available, which, in effect, can also limit the medical personnel’s ability to provide top-notch healthcare services.

However, when your leased equipment begins to deteriorate or if new technology becomes available, hospitals can switch to newer equipment without suffering massive financial losses through their medical equipment leasing.

When Hospitals Need the Flexibility to Grow & Improve Their Practice & Their Medical Equipment Over Time

The affordability of leasing equipment and paying only for the duration of their use makes it easier for hospitals to scale and upgrade according to their need and financial capacity. This can help bottom lines, clients care, and credit availability all while helping practices grow and succeed.

When Hospitals Aim to Own Medical Equipment at a More Affordable or Staggered Payment Plan

This is one of the perks that lessors offer to customers in the medical field and a benefit that medical institutions can take advantage of. There are diagnostic and testing equipment, for example, with mature technologies or are ingrained in standardized workflows that it is unlikely for hospitals to change them soon.

Once the terms of the lease are fulfilled (e.g., the institution has rented the equipment for x number of years without violating agreement rules), the hospital can gain full ownership and reap the returns on their investment.

Regents Capital is Here for Your Medical Equipment Needs

These scenarios are all good reasons to lease medical equipment instead of purchasing them. If you need more information to support your medical practices’ financial decision on leasing or owning, Regents Capital would be happy to help!

Get in touch with our team and find out how our services can benefit your institution today!

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