analysis of renting equipment vs purchasing 1
DESCRIPTION
Presentation by Tom Bagwell, Peterson CATTRANSCRIPT
Leasing, Rental, Ownership
Tom Bagwell
Peterson Cat
Financing – Money over Time
Financial Products
Installment Sale Contract (ISC)
Finance Lease (FLOP)
Flex Lease (I & II)
Governmental Lease Purchase
Revolving Line of Credit
TRAC Lease
Long Term Rental Lease (FMV)
Window Lease
Split TRAC Lease
Operating LeasesLoans & Capital Leases
What to Consider:
• Strategy – Own (Build Equity?) or Lease or Rent
• Tax Considerations– Do you want/need depreciation tax shields
• Financial Considerations– Loan Covenants
Installment Sale Contract(Loan)
> Benefits:• Tax benefits of ownership, including depreciation and interest-expense deductions• New and used equipment may be financed• Lowest total acquisition cost option for machine ownership
> Length:• New equipment: 12–60 months (terms greater than 60 months may be considered upon request)• Used equipment: 12–48 months
> Finance Rate:• Fixed
> Down Payment:• Generally required in the form of cash, trade-in or rental equity
> Tax Benefits:• Retained by customer
> Payment Flexibility:• Monthly, quarterly, semi-annual and annual payments are available, provided payments are in advance
Lowest total acquisition cost option for machine ownership.
Installment Sale Contract ExampleStandard Rate = 5.95%Amount Financed: $100,000Term: 48 mthsPayment: $2,346.21
Promotional Rate = 3.35%Amount Financed: $100,000Term: 48 mthsPayment: $2,228.90
Finance Lease
> Benefits:• 100 percent financing for qualified customers• Bargain purchase options or mandatory purchase amounts (balloons) are available• For U.S. tax purposes, the customer is entitled to tax benefits of ownership.
> Length (new equipment):• 12–60 months (terms greater than 60 months considered upon request)
> Finance Rate:• Fixed > Purchase Option Alternatives:• Provision to purchase at predetermined amount or return machine to Lessor• May choose bargain purchase option or mandatory balloon as low as $1 or at a predetermined amount based on the finance term, equipment use, application and machine specification> Tax Benefits:• Retained by Lessee (Customer)> Payment Flexibility:• Monthly, quarterly, semi-annual and annual payments are available, provided payments are made in advance
Potentially Lowest Upfront Cash Option where tax benefits are retained by the customer.
Finance Lease Contract Example$1 BalloonSale Price: $100,000Term: 48 mthsPayment: $2,334.62Balloon: $1.00
Residual OptionSale Price: $100,000Term: 48 mthsPayment: $1,791.26Option: $29,511.20
Flex Lease
> Benefits:• Provides low monthly payments• For U.S. tax purposes, the customer is entitled to tax benefits of ownership, including depreciation and interest expense deductions• Early Return Options available at a specific time before termination of the lease (outs)
> Length (new equipment):• 24–60 months
> Purchase Option Alternatives:• Provision to purchase at a bargain purchase option or return machine to Lessor• Purchase option is based on the machine specification, equipment usage, application and finance term> Tax Benefits:• Retained by Lessee> Payment Flexibility:• Monthly, quarterly, semi-annual, and annual payments are available provided payments are in advance.
Customers have the option to return the equipment at the predetermined out(s).
Tax benefits are retained by the customer.
Tax Lease – Customer Value Option
> Benefits:• Provides low monthly payments• Generally qualifies for off-balance sheet financing• Frees working capital for operating needs
> Length (new equipment):• 24–60 months (terms greater than 60 months may be considered upon request)
> Purchase Option Alternatives:• Provision to purchase at predetermined amount or return machine to Lessor. The option is based on machine specification, equipment usage, application and finance term.
> Tax Benefits:• Retained by Lessor
> Payment Flexibility:• Monthly
The off-balance sheet CVO Lease solution allows the machine to be “rented” while achieving price realization.
Tax Lease – Long Term Rental
> Benefits:• Provides the lowest possible monthly payment• Generally qualifies for off-balance sheet financing• Frees working capital for operating needs
> Length (new equipment):• 24–60 months (terms greater than 60 months may be considered upon request)
> Purchase Option Alternatives:• Provision to purchase at a Fair Market Value (FMV) or return machine to Lessor• FMV purchase option based on machine specification, equipment usage and application and finance term
> Tax Benefits:• Retained by Lessor
> Payment Flexibility:• Monthly (Other schedules considered upon request)
FMV option is not a predetermined amount and is not stated on the contract as such. Cat Financial determines FMV.
FMV vs. CVO Contract ExampleCVOSale Price: $100,000Rate: 5.45%Term: 48 mthsPayment: $1,626.45Option: $38,733.45
FMVSale Price: $100,000Rate: 5.17%Term: 48 mthsPayment: $1,610.26Option: $FMV
