Capital Leases

Capital Lease – $1.00 Buyout

A Capital Lease is perfect for business owners that want to own their equipment 100% when they make the final lease payment. It is good for assets or machinery which will last a long time (over 5 years) and do not become obsolete quickly. This would apply to equipment like solar energy, LED lighting, industrial manufacturing machines, machine shop tools, construction equipment, work vehicles, trucks and trailers and aircraft for personal or business use. When you finance equipment with a capital lease, you can treat it as if you own it and depreciate it as well since it is understood that you plan to keep it.

Capital Lease key points include:

  • Term: 3 – 5 years is standard and 7 years is possible depending on type of equipment
  • Rates: 5% – 9% depending on dollar amount and business credit rating
  • You have 100% ownership of the asset when the last payment is made
  • Good option for non-profit organizations wanting to finance an energy system like solar
  • For-profit companies can finance a solar system or energy project and keep all the tax credit, depreciation and other benefits
  • Fixed monthly payments with no balloon payout at the end (some capital leases can have balloon payment if the client decides to have a lower monthly payment)
  • Approval process and documentation is fast compared to other commercial lending alternatives

The length of the term and the rate will depend on the type of equipment financed and the company and personal credit. Closely held businesses will normally require a personal guarantee. Larger companies with numerous owners or non-profit groups will not require a personal guarantor as long as the credit profile and cash flow is adequate. The Capital Lease is popular because of its simplicity; equipment under $150,000 can be approved with minimal paperwork, equipment over $150,000 requires a 2 or 3 year financial package depending on the total equipment cost.