We are committed to helping you capitalize on your new piece of equipment. Our dynamic leasing and financing portfolios offer unparalleled opportunities, with a first-class team of experts to accommodate your budgetary needs with tailor-made solutions.
The UOS Rent-Purchase Option (RPO) is one of the best in the business, and has become a huge success among our customers. This program gives customers options to rent equipment fast, and allows you to use part of your rental expense toward the payment of the equipment. Top-flight, dynamic lease and financing solutions are just part of the UOS difference.
Utility One Source partners with multiple banks to offer you a robust leasing platform. There are three main types of leases offered, capital, operating, and TRAC.
- Capital Lease
To be considered a capital lease, a lease must meet one or more of these four criteria:
(1) title of the asset passes automatically from the lessor to the lessee at end of the lease term,
(2) lease contains a bargain purchase option under which the lessee may acquire the leased-asset at less than its fair market value at the end of lease term,
(3) lease term is for a period longer than the 75 percent of the estimated economic life of the asset,
(4) the present value of the lease payments is greater than 90 percent of the fair market value of the asset at the beginning of the lease term. (Criteria by BusinessDictionary.com)
These fixed-term leases are similar to loan agreements for purchase of a capital asset on installments, and are often non-cancelable. The bank finances the equipment, and the lessee is responsible for all other costs including insurance, maintenance, and taxes on the equipment. Capital leases are similar to a sale by the lessor, and a purchase by the lessee, however the title remains with the bank. Equipment capital leases show up in the lessee’s balance sheet as a fixed asset and a non-current liability. The lessee receives all economic benefits and risks associated with ownership, but can only claim the interest portion of the lease payment as an expense.
- Operating Lease
These short-term leases are commonly used by equipment manufacturers who expect to take back the leased equipment after the term ends. The lessee has the exclusive right to use the leased equipment for a specified period and under specific conditions. The lessor retains almost all risks and rewards of the ownership throughout the term of the lease. Lease payments are charged as expenses on the lessee’s income statement, but no associated asset or liability appears on the balance sheet.
- TRAC Lease
A terminal rental adjustment clause lease (TRAC Lease) combines all the advantages of leasing while retaining the option to purchase the equipment at the end of the lease term at a pre-determined residual agreed to when the lease starts. Monthly payments on a TRAC Lease are determined by the residual price established at the start of the lease. Depending on cash flow needs, one 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 and better manage its cash flow.
At the end of the lease term, the customer has the following options:
- Buy the equipment for the pre-established residual purchase amount.
- Replace / trade / upgrade equipment.
- Continue leasing by financing the residual amount.
- Return the equipment to the bank.
The IRS code allows the lessee to maintain the “full deductibility” of a true/operating lease even though there is a pre-determined residual value. The lessor would retain the rights to any depreciation.
Some of the benefits to a TRAC lease include:
- Pre-established purchase option
- Enables you to share in any upside proceeds gained from the sale of equipment
- Lower monthly payments
- Improved cash flow
- Fixed and variable payment structures
- Off balance sheet financing
- This type of lease is generally less expensive than other leases or conventional bank financing
- Full tax deductibility
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