Equipment Financing Solutions
Selecting the right financing product is about more than just the cost of capital. Many other factors influence how a company finances its equipment including the state of the economy, innovation needs, company liquidity, and the equipment’s planned operational use.
The team at GEF seeks to provide the product and structure that best fits your needs. We provide several product structures customized to work best for targeted business needs:
Choosing the Optimal Financing Product
We work with you to match your financial objectives with the optimal loan or lease product to support those goals. Our recommended financing product depends on various criteria including:
- Liquidity available for downpayment
- Depreciation and tax benefit objectives
- Desire to own assets versus deferring ownership decisions
- Existing bank restrictions on capital expenditures
- Budgeting and planning requirements, e.g., fixed payments
Loans vs. Leases
Loans and leases are financing options for equipment acquisition that achieve different objectives. These products have different features related to equipment ownership, payment structure, end-of-term options, and accounting treatment, some of which are outlined below.
- With a loan, the borrower/business owns the equipment and assumes all of the benefits and associated risks.
- With a lease, GEF owns the equipment and provides a base lease term tailored to your needs and the equipment’s useful life.
- Loans usually have a floating interest rate and have monthly interest plus principal payments due in arrears. Some loans are also fixed rate and have equal monthly payments comprised of interest and principal – also due in arrears.
- Leases are fixed rate in nature typically with equal monthly lease payments due in advance.
- With a loan, the business owns the equipment and completes its ownership position with a final scheduled payment.
- A lease usually has multiple end of term options including: i) return of the equipment; ii) renewal of the lease for a mutually agreeable new term; or iii) purchase of the equipment for a defined amount or prevailing fair market value at lease end.
Lease Structures and Features
|Ownership||End-of-Term Options||Accounting Treatment||Tax Benefits||Product Usage Scenarios|
|True Leases||GEF owns the asset||Flexibility to return the asset, renew the lease, or purchase the asset||True leases can be recognized as expenses however will be recognized on the balance sheet as assets and right of use liabilities||GEF retains the tax benefits||
|Finance Leases||GEF retains purchase money security interest||Bargain purchase (i.e., $1, or nominal value)||Lessee recognizes interest and principal inside payments and on balance sheet as a Capital Lease||Lessee retains the tax benefits||
|Sale Leasebacks||Depends on True or Finance Lease Structure||
||Follows True and Finance Lease guidelines||Follows True and Finance Lease guidelines||