ASSET BASED LENDING – A Great OptionJuly 22, 2011
Delusional FinancingSeptember 8, 2011
Lease/Purchase financing is designed to complement, not replace, bond financing for government agencies. Leases afford the opportunity to acquire equipment during the current fiscal year instead of having to wait until the next budgetary cycle. For vendors promoting government projects, it offers the lowest rates in the industry commonly in the 3, 4 and 5 percent range.
In addition, lease financing offers the following advantages to the government.
- 100% financing to include design, delivery and installation costs.
- Terms available up to ten years, sometimes longer (depending on the collateral).
- Tax-exempt interest. Lease payments include principal and an interest portion. The IRS has determined that interest paid in this manner is exempt from federal and state income tax. This means the government can take advantage of lower interest costs.
- No debt created. Lease payments are subject to annual appropriations, which mean that the obligation is not subject to statutory debt limitations. Since no debt is created, municipal leases do not require voter approval.
- Budget enhancement. Leasing allows public agencies to acquire needed improvements now rather than wait until the next fiscal year or beyond.
- Leveraged dollars. Leases may be designed to match finance terms to the expected useful life of the asset and spread the cost over a multi-yearperiod.
- Flexibility. Payments may begin upon installation or delayed until the next fiscal year. In addition, they may be made in monthly, quarterly, semi-annual or annual installments.
- Equipment and Real Property financed through a tax-exempt lease may be funded into escrow to facilitate project financing or progress payment requirements.
- Cost effective. Lease approval and documentation is very inexpensive to initiate.