Why should I lease property instead of buy it?

Leasing is flexible. A lease provides the use of equipment for specific periods of time at a fixed rental payment and allows you to be more flexible in managing your equipment needs. Leasing is practical. By leasing, you are able to concentrate on using the equipment as a productive part of your organization without having all the concerns that come with property ownership.

Leasing is cost effective. Equipment may be expensive and some costs can be unexpected.
When you lease, the risk of having to operate with potentially obsolete equipment can be lower because you can upgrade or add property to meet your changing needs.

Leasing allows you to stay on the cutting edge of technology. Business managers have learned that the primary benefits of higher productivity and profit come from using property,
without owning it.

Leasing helps conserve your operating capital. Leasing can help to better manage your balance sheet by keeping your other lines of credit open. You don’t tie up cash in property and you can avoid costly down payments.

What is a lease?

A lease is a contract where one party (the “lessor”) gives another (the “lessee”) exclusive rights
to use and possess its property or equipment for a specified period. The contract will require the lessee to make periodic payments (or “rentals”) to the lessor for the use of the leased property. Lease arrangements can be structured in a variety of ways to suit the needs of the lessee.

How much will it cost?

Lease costs depend on factors such as the value of the property being financed, the frequency
of payments, the length of the lease, and the end of term options.

What types of property do you finance?

Just about any type of equipment and furnishings can be leased on highly favorable terms through WAL Leasing, including:

Bar-coding/optical imaging systems Broadcasting and CATV equipment Computer hardware, software and services CAD/CAM systems Furniture and office equipment Manufacturing / production equipment Network cabling/routers and network services

Personal and laptop computers Printers/copiers Point of sale systems Software Telecomm.systems/related equipment And more!

Can leasing help cash flow?

Increasing cash flow may simply mean reducing the payments you make each month. A lease
can help increase cash flow because rental payments are usually less than debt financing payments. This represents real cash savings.

What asset ownership plans affect the lease-buy decision?

Your plans for the property you’re acquiring will affect your decision to lease or buy.
You should answer the following:

How long will you need the equipment?

What is its expected useful economic life?

Will new technology increase the chances that the property may become obsolete?

How will inflation affect its market value, particularly if you have to replace it?

What is the value of cash savings from leasing for your organization?

When the lease matures, will the expected value of the property be offset by benefits     of lower rentals during the lease term?

How does leasing compare with other financing options?

Leasing is most advantageous for organizations with limited budgets and organizations wanting
to protect against possible technology obsolescence. When acquiring new IT assets, payment choices include cash purchase, loans, lines of credit and leasing. Leasing compares very
favorably with each of these other payment options in that it offers a combination of:

Minimum initial cash outlay.

Fixed payments.

Ease of upgrading and adding additional property.

Avoidance of possible technological obsolescence.

Possible tax and accounting benefits.

Can I upgrade and/or add equipment?

Yes. We’re a service company and, in particular, our use of a master lease agreement easily facilitates annexing lease schedules for upgrades and/or adding additional property. Property, subject to our credit review and approval, can always be upgraded and/or added.

Can support and services be financed?

Yes. Fees for maintenance and support may be financed over the lease term. All leased
property must be maintained while on lease.

How much software, services or support can I finance?

It depends on a number of factors. Decisions are made on a case by case basis.

Broker
An intermediary between the lessee and lessor. The broker arranges a leasing transaction. The broker is usually paid some fee by the leasing company for its services.

Capital Lease
A specific classification of a lease for accounting purposes. The classification of the lease will determine how the lease is to be accounted for. A lease generally will be accounted for by the lessee as a capital lease if it meets one of the following criteria: (a) at the end of the lease, the lessee owns the property being leased; (b) at the end of the lease, the lessee can purchase the property for a bargain purchase option; (c) the lease term exceeds 75%
of the estimated economic life of the leased property; (d) the present value of all lease payments is equal to 90% or more of the cost of the leased property.

Capped Fair Market Value
A provision in the lease allowing the lessee to purchase the leased property for its fair market value, but not exceeding a certain amount. The advantage of the cap is that the lessee will know the maximum payment required to purchase the leased property.

Certificate of Acceptance
A written verification by the lessee that they have received the property to be leased. Most leases begin after the date stated on the certificate of acceptance.

Coterminous
Two or more leases that end at the same time.

Cross Corporate Guaranty
A guarantee by one corporation to pay the lease obligations of another corporation.

Default
If a lessee does not comply with the terms of the lease, a default occurs. Generally, after a default, the lessor can exercise all of its rights under the lease to repossess the property and seek money damages.

Direct Finance Lease
Same as a capital lease except this accounting classification only applies to a lessor.

Dollar Buyout
An option at the end of the lease to buy the leased property for $1.00.

Economic Life of Leased Property
The estimated time the leased property can be used with normal repairs and maintenance.

Fair Market Value
The technical definition of fair market value is the price a willing buyer will pay a willing seller for leased property on an “as is, where is” basis with both under no compulsion to either buy or sell. In reality, this is a vague term, often creating a question between a lessor and lessee regarding what is the fair market value. Stated another way, what will someone pay for the leased property at the end of a lease.

Fair Market Value Purchase Option
Similar to a purchase option, this lease term gives the lessee the ability to purchase the leased property at its fair market value at the end of a lease.

FAS 13
Technically, this is the statement of Financial Accounting Standards No. 13 entitled “Accounting for Leases”. This document sets forth standards for how parties to a leasing transaction should account for such transaction.

FASB
This is the Financial Accounting Standards Board. This is the group that establishes the general accounting policy and theory to be followed by both internal accountants and external auditors.

Financial Statements
Accounting statements that provide specific information about a company’s financial position. They include the Profit & Loss Statement, also known as the Income Statement, the Balance Sheet, and the Statement of Cash Flows. Financial statements can generally be audited by an outside CPA firm or be unaudited and, thus, prepared by the company.

Financing Statement
This is a document specified under the Uniform Commercial Code, a law applicable in all states. This puts the world on notice that a security interest has been filed against the person on the form listed as the debtor.

Interim Rent
Rent paid for an interim period of time. Many leases begin at the start of a period such as the first of the month. If leased property is received and a certificate of acceptance is signed prior to that date, often there is an interim period between the acceptance and the start of the first lease rental. This period of time is called the interim term during which the interim rent is paid. The interim rent is generally calculated as a percent of the standard monthly rent prorated over the number of days in the month the lessee has use of the leased property.

Investment Grade Credit
Generally refers to a lessee of high credit standing. Technically, an investment grade credit is a company rated highly by one of many recognized credit agencies such as Standard & Poor’s.

Lease
A contract giving the lessee the right to use the leased property for a period of time.

Lease Line
A line of credit similar to a bank line of credit. It allows the lessee to easily add additional leased property under the same terms and conditions without negotiating additional agreements.

Lease Rate Factor
This is a percentage which when multiplied by the cost provides a periodic rental. It is a helpful number when used by either a sales person or the lessee. In the event the cost of the leased property is either not exactly known or may change, having the lease rate factor allows a quick recalculation of a lease payment when that number becomes known. Generally expressed as $1.00 of rent for each $1,000 of acquisition cost.

Lease Term
The fixed term of the lease.

Lessee
The user of leased property under the lease.

Lessor
Depending on the type of lease, either the owner of the leased property or the owner of a security interest in the leased property.

Letter of Credit
A specific arrangement between a lessee and one of its banks. The bank agrees in the event of a defined event, the lessor can look to the bank to make payment instead of the lessee. This is similar to a security deposit in that it is one way for a lessor to insure that it will be paid under a lease.

Master Lease
The primary document between the lessor and lessee containing all the general terms and conditions for leasing. Individual leases can then be relatively short and incorporate the master lease by reference. It is a very convenient administrative document so that once agreed, legal terms and conditions never need to be negotiated again.

Middle Market Credit
A lessee without an investment grade credit rating, but generally with sales greater than $50 million annually.

Municipal Lease
Same as a capital lease except that the lessee is a public entity. Although the product and features are identical, the legal documentation is different because of the unique status of public entities.

Net Lease
Any lease where all costs in connection with the use of the leased property are paid by the lessee and are not part of the periodic lease payments. For instance, maintenance, insurance and taxes are paid directly by the lessee. Capital leases are generally net leases.

Operating Lease
Another accounting classification for a lease. A lease that does not meet the criteria for a capital lease is an operating lease. With an operating lease, at the end of the lease term, the lessee will either purchase the leased property or renew the lease, or the leasing company can remarket the leased property for its residual value.

Personal Guaranty
The guarantee of someone to be individually responsible for the obligations under the lease. Generally for Subchapter S closely held companies and small businesses, a leasing company may ask for a personal guaranty as a way to insure that the lease payments will be made.

Progress Payment Loan
The lessor makes all milestone payments required by the vendor until all associated equipment, customization, training, installation and conversion has been provided by the vendor. This product is generally used with larger transactions that require milestone payments over a short time between three months and 18 months.

Purchase Option
Option to purchase leased property at the end of the lease term.

Refundable Security Deposit
An amount paid by a lessee to provide extra protection to the lessor to insure that the lessee will pay its obligations under the lease.

Remarketing
The process of selling or re-leasing leased property which has been returned to the lessor either
at the end of the term or as a result of a default in lease.

Remarketing Fee
A fee paid for selling or re-leasing leased property.

Rent Holiday
A period of time during which a lessee is not required to pay rent.

Residual Value
The value of leased property at the end of the lease term.

Sale-Leaseback
A transaction which involved the sale of property by the lessee to the lessor and a lease of the property back to the lessee.

Security Interest
An interest in property that is acquired for purpose of securing payment of a lease obligation. A security interest allows the holder to obtain the property in the event of default and gives the holder additional rights in the event of bankruptcy.

Step Down Lease
Another variant of the “Step Rental Lease”. A lease where the lease payments decrease over the term of the lease.

Step Rental Lease
A lease where the rent may change during the term of the lease. The change is known at lease
inception and is agreed by both the lessor and the lessee. Often a step rent lease allows the lessee
to pay less initially and more later in the term.

Step Up Lease
Similar to, again, a “Step Rental Lease” and a “Step Down Lease” except the lease payment is increased during the term of the lease.

Stipulated Loss Value
This is a term in a lease requiring the lessee to pay the value of the leased property in the event there has been some type of damage or destruction to the leased property.

Vendor Leasing
A working relationship between a leasing company and a vendor to provide leasing to the vendor’s
customers. In some sense, the leasing company is working as an extension of the vendor providing credit checking, billing and collecting documentation, and customer service. The leasing company, generally, is accepting the credit risk.