Financing to Move You Forward
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The term “TRAC lease” stands for terminal rental adjustment clause lease. This is a type of lease that is commonly used for vehicles and equipment.
BENEFITS OF A TRAC LEASE INCLUDE:
In most states, there may be no initial outlay to cover sales tax. You get the equipment you need for a fixed monthly payment that can be significantly lower than the payment available on equipment loans or other lease agreements.
You can continue to use those to grow your business.
With this type of lease, you will have the option to purchase the equipment after you complete your lease agreement. If you find a piece of equipment that you really like, you can hang onto it. If you want a different piece of equipment after the lease is over, you also have that flexibility.
The residual sales price will be determined before you agree to the lease. So when the lease is over, the price on the equipment does not have to be negotiated. Fixed residuals will help to plan “trade cycles”.
With a TRAC lease, you can choose a lower residual at the end of the lease which results in a higher monthly payment OR choose to get a lower monthly payment and agree to a higher residual at the end of the lease term.
FAIR MARKET VALUE ‘WALKAWAY’ LEASE
With a Fair Market Value Lease, you will generally enjoy lower monthly payments compared to other kinds of leases. That gives you greater financial flexibility over the course of the lease.
BENEFITS OF A FAIR MARKET VALUE ‘WALKAWAY’ LEASE INCLUDE:
Because the asset you’re leasing does not become a long-term liability, you avoid taxation for that. Since the equipment is not recorded as an asset, all your lease payments are 100% tax deductible. Leasing provides a method whereby a company can benefit from using new equipment without triggering the Alternative Minimum Tax (AMT) penalty.
You have no obligation to purchase equipment at the end of the lease. You have the option to negotiate the fair market value at the end of the term and make the purchase outright, or you can simply walk away with no further obligation.
Because fair market value leases require minimal upfront costs, you’ll incur just your monthly payment expense. With this type of lease, there is no large payment before, during or after the term.
With an FMV lease, you can control your costs, by locking in a payment and warranty that will give you a predictable payment for the term you decide. At the end, you just turn in the equipment and can start again. This ensures you run the latest equipment with a stable payment you can rely on.
In an inflationary economic environment, your future payments will be paid with inflated dollars.
Purchasing equipment through a loan instead of a lease might be the right financial decision for your business. For example, if the equipment is expected to have a long productive life and can operate without needing a replacement or upgrade then purchasing by using a loan might be the best solution.
By choosing a loan, your company can have the ability to utilize the purchased equipment right away, while spreading loan payments over the life of the asset. You can generate income from the equipment, gain equity, and have an opportunity to pay the loan off sooner.
BENEFITS OF AN EQUIPMENT LOAN INCLUDE:
The outright purchase of equipment and machinery through a loan can be a boost to the asset holdings of your company. This can be beneficial to your overall business strategy if there is a low obsolescence factor in the equipment your work requires.
There are two ways using a loan to purchase the equipment and machinery your business needs can be beneficial at tax time. For instance, the IRS allows for a deduction of the loan payment interest to be deducted. You may also deduct depreciation according to the IRS depreciation schedule.
A fixed rate loan with set terms helps you better manage your assets and liabilities and know your future cash flow requirements over an agreed amount of time with no surprises.
By having a separate loan behind your equipment purchase, you can free up your credit lines for shorter-term needs.
Loans improve credit ratings with timely payments and a successful completion of the loan. Plus, with a high credit rating, your business has buying power for future expenditures that might have previously been out of reach.
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