Equipment Leasing Information - Trident Leasing Corporation

Equipment Leasing Tax Deductions

2008-06-10T13:35:00.000-07:00

One of the greatest advantages equipment leasing holds over equipment loans or paying cash is the tax deductibility of equipment leases. Various leasing options offer different tax benefits, and Trident Leasing Corporation believes strongly in finding a plan that works best for you. The first thing to recognize is that there are two basic leasing options recognized by the lessor and lessee:

Operating Equipment Lease: An operating lease recognizes the equipment primarily as being rented, keeping equipment ownership off of the lessee’s balance sheets and focusing on the expense of lease payments for tax deductions. An operating lease works as a “True Lease.”

Capital Equipment Lease: A capital lease assumes you will take advantage of a buyout option and treats the lease more as a purchase, placing the equipment on your balance sheet and thus focusing on the depreciation of the equipment for deductions in your taxes.

These two lease methods are equivalents of the IRS recognized categories of leasing, the tax-oriented true lease and non tax-oriented leases. Understanding how the IRS is going to view your equipment lease agreement is crucial to opting for the proper form of tax deduction. Following is a summary of the details of these two lease categories:

Tax-Oriented True Equipment Lease: With a true lease, the lessor retains ownership of the equipment. As the agreement with the lessee is recognized as a rental, the equipment stays off of the lessee’s balance sheets and the lessee is able to deduct the entire lease payment. Lease payments are always fixed and cost the same each year, making budgeting easier. The lessee generally has a fair market value purchase option at the end of the equipment lease.

Non-Tax Oriented Equipment Lease: The lessor is the legal owner of equipment in every lease agreement, but with a non-tax oriented lease the equipment appears on the balance sheets of the lessee. This allows the lessee to make tax deductions on the depreciation of the equipment during the lease term. This option operates based on an understanding that the lessee will take advantage of their purchase option at the end of the lease term.

It is important to pay attention to the type of equipment you are looking to acquire in order to decide which option is best for you. In every lease transaction, it is also important that you consider the benefits of expensing the equipment itself. Internal Revenue Code Section 179 allows a deduction on tangible property for your business in the year it is purchased.

The Section 179 deduction does not occur automatically, so remember to select this deduction when filing taxes in any year you bought equipment. The amount of allowed deduction under Section 179 has been increasing annually, so take this into consideration when choosing whether or not to implement a purchase option at the end of a lease agreement; also, do not forget to deduct your lease payments or equipment depreciation when filing taxes with an equipment lease.

How to Read a TransUnion Credit Report

2008-06-05T14:04:00.000-07:00

Credit reports are a way to review the financial history of an individual, particularly by companies from whom they are attempting to borrow. As a consumer, you should remain informed on what your credit reports say. To help you, the Fair Credit Reporting Act requires the three National Consumer Reporting organizations, Equifax, Experian and TransUnion, to provide you with one free credit report every twelve months.

These three credit reports vary slightly, and understanding how to read them is important. For example, TransUnion credit reports use several icons in your account summaries, making it easy to read and understand the status of your various accounts. Following is a summary of the primary portions within a TransUnion credit report:

Personal Information

This includes your name, phone number, current address, Social Security Number (protected against identity theft) and your current employer along with your position and date of hire. TransUnion also states how long you have been recorded in their database.

Account Information

This is simply a convenient legend for the icons used through the following account summaries. Account status symbols include: not applicable, unknown, current or 30/60/90/120 days late.

Adverse Accounts

These are accounts in which information may lead potential creditors to view you as a risk. Account information includes name, address and phone number of creditor, your account number, current balance and highest balance, account limit, account status, account type and the date you opened the account. The report lists how much money is past due and how many times the account a payment has been made 30/60/90 days late. Bankruptcies, liens, foreclosures and judgments will be listed in this section.

Satisfactory Accounts

This section lists all accounts that work towards a positive FICO score, increasing your likelihood of credit approval. They will contain the creditor’s name, address and phone number, your account number, your current balance and highest balance on the account as well as your limit, account status, the date the account was opened and who bears responsibility for the account. TransUnion will also specify the type of account and how many times a payment has been made 30/60/90 days late.

Regular Accounts

This portion lists companies that have made inquiries against your credit file and received your report within the last two years. This may include any companies with which you have applied for credit, mortgage loans or any potential employers. The name and address of the requesting company will be reported along with the date and reason for inquiry.

Inquiry Analysis

This lists the names and addresses of companies who have requested, although not necessarily received your credit report, along with the date of request.

How to Read an Equifax Credit Report

2008-05-30T13:29:00.000-07:00

These three credit reports vary slightly, and understanding how to read them is important. For example, Equifax contains information on previous employers that future potential employers may find helpful. Following is a summary of the primary portions of an Equifax report:

Personal Information

This section lists basic personal details, including your name, Social Security Number (SSN), birthday, previous names, current and previous addresses and other forms of identification. The section includes your current employer and title, employment history and any fraud alerts.

Account Information

This section lists all of the accounts you have on file. Information included with the accounts is the account type, your account number, the date you opened the account, your current balance and how much is past due on the account, its current status and your credit limit on the account.

Inquiries

This section lists inquiries into your credit, which come in two categories:

Inquiries by other companies which may affect your score – This includes potential creditors to which you have applied for a line of credit, mortgage loans, etc. Company names and the date of inquiry will be listed, and your score is only slightly affected.
Inquiries that do not affect your credit score – These inquiries do not affect your credit score, and may include inquiries by companies seeking to offer a pre-approved line of credit, review by current creditors or yourself, etc. Lists the company name and date of inquiry.

Collections

This section lists your accounts that have been sent to collections, providing the creditor, creditor type, the date reported, your account number, original amount owed, date the account turned delinquent, your outstanding balance and current status information.

Public Records

This section lists any bankruptcies, liens or judgments on your record from federal, state or county courts. Information listed includes the type of record, case number, amount of money defaulted and any other pertinent information.

Statements

This last portion proclaims any statements you have requested Equifax to post at the end of the report. Example statements include requests for companies to call you before checking your credit, or to report whether you are a victim of identity theft.

How to Read an Experian Report

2008-05-30T13:27:00.000-07:00

These three credit reports vary slightly, and understanding how to read them is important. For example, any account on file with a medical entity will be displayed as “Medical Payment Data” on an Experian credit report, to protect your medical privacy. Following is a summary of the primary portions of an Experian report:

Personal Header Info

This section identifies you by your full name, a report number required to contact Experian concerning your report via phone, mail or internet, and the report date.

Potentially Negative Information

This section lists information such as bankruptcies, liens, judgments, foreclosures, or any other information that might identify you as a risk to creditors. Information given will include the name and address of the creditor, your account number, account status, the date the claim was filed and resolved, the claim amount and reports who bears responsibility for resolving any issues against the account.

Credit Items

This is a list of all of your current and previous accounts. It will include the name and address of the creditor, the date you opened the account, your account number, status, type of account, your credit limit, current balance and recent payment. It will also list what your payment terms are and your current monthly payment. An additional section entitled “credit history” will indicate whether the account has been to collections or is delinquent.

Accounts in Good Standing

As well as listing information that might make creditors wary, Equifax lists information that would impress creditors. This section lists all reported accounts with a positive status, including the creditor’s name and address, your account number, account status, the date you opened the account and its current status, recent balance and payment terms, the original credit limit and any recent payments as well as who bears responsibility for the account. Any other personal statements concerning each account are listed at the end of account information.

Requests for Credit History

This section lists inquiries concerning your credit file and is broken down into two categories:

Requests viewed by others – This is a list of inquiries into your credit file by creditors who have your permission. These include companies to whom you have applied for credit or a home loan or any accounts sent to collections. Information listed may include the name of the inquiring company, their address, the date of inquiry and any comments.
Requests viewed by you or others with permission – Other than yourself, this shows requests by others with permission under the Fair Credit Reporting Act. This may include offers for pre-approved lines of credit, account monitoring by current creditors, prospective employers or investment reviews. Information listed includes the name and address of the inquiring company, the date of request and any comments.

Personal Information

Unlike Equifax and TransUnion, Experian credit reports contain your personal details at the end of the report, rather than the beginning. Personal information includes your name (as well as any name variations or previous names), date of birth, phone number, social security number, current and previous addresses (with housing unit type and geographical code), current employer and any statements you have authorized Experian to make.

Personal Message from Experian

Experian concludes by informing you that any medical specific information, such as a particular clinic that may appear on your record, will be listed as “Medical Payment Data” to prevent disclosure of medicinal ailments. Medical statements posted at your request will be viewable by others.

History of Equipment Leasing

2008-05-07T12:35:00.000-07:00

The advantages of leasing equipment have been acknowledged for millennia, the first recorded application of equipment leasing dating back to 2010 b.c. in the Sumerian city of Ur. Priests of Ur rented land and farming equipment to agricultural workers, etching the agreements in clay tablets. Equipment lease documents have also been discovered in other empires such as Babylon, Egypt, Greece and Rome. The ancient Phoenicians structured a more modern lease in the leasing out of ships, which were more susceptible to depreciated value or destruction.

In America, equipment leasing was first adopted in the 1700’s. Transportation equipment dominated the leasing world for two centuries, beginning with horses, buggies and wagons in the early 18^th century to barges, railroad cars and locomotives in the late 19^th century. The 1870’s in particular saw an important transformation in the lease process with the introduction of what is now termed a true lease, allowing the lessor to retain the equipment at the end of the lease.

Continuing into the 20^th century, economic progress in the early 1900’s generated an increased attraction towards equipment leasing. Many citizens during the 1920’s enjoyed the lending market to obtain what they could not immediately afford. Manufacturers took advantage of lending opportunities, making sales more attractive to customers by offering leasing plans with payment installations.

During World War II, many factors contributed to the evolution of equipment leasing in America. Machinery was required for arms production which would be unnecessary during peace time after the war, increasing the demand for leasing. The necessity of affording extra costs associated with equipment lead to the development of operating leases, in which equipment such as a truck would be leased conjointly with a skilled operator. Long term true leases began to grow with the railroad industry.

Postwar progress saw the creation of the first corporation dedicated primarily to leasing in 1954, the U.S. Leasing Corp. Consequently, leasing options were refined to provide flexibility for customers and cater to their needs. Vendors began to understand the benefits of leasing their equipment to customers through third party corporations or in-house leasing programs. Related finance laws started to change and adapt to meet the rising demand for equipment financing.

Today, equipment leasing is an important industry, having grossed $218 billion dollars in 2004. It evolved from a “last resort” financing option to one which vendors in any industry may take advantage of, from high-tech industries to construction companies. Several companies use leasing as a primary method of financing their equipment. About 85% of businesses in America today lease equipment, and with continued advancements in the financial market the equipment leasing industry continues to rise.

How to Read a Dun & Bradstreet Report

2008-03-24T12:00:00.000-07:00

Dun & Bradstreet reports provide detailed reports on millions of businesses internationally. These reports help companies decide who to do business with, making it important to know how to read a Dun & Bradstreet report to both evaluate other companies and to understand what is said about your own. Following are comprehensive summaries of some primary portions of a Dun & Bradstreet report.

Business Summary – This summarizes basic business information, such as address, year started and names of primary managers. It also contains an SIC code, identifying what type of business the company is.
Payment Analysis – The payment summary gives detailed information on the company’s payment history. It also provides a PAYDEX, measuring how punctual the company has been in paying its bills compared to others in the same industry.
Credit Score Summary – This portion predicts the likelihood that a company will make late payments. It is calculated using the most recent payment information available to Dun & Bradstreet.
Financial Stress Summary – Predicts the likelihood of a company to cease operation without paying back creditors. This is based on the individual company’s financial stress record and trends of other companies in the same industry.
Business Background – Provides more detailed information on primary managers of the company such as history, as well as history of the business. Also provides information on company operation, telephone and fax numbers, and addresses of additional branches of the company.
Financial Summary – Detailed information on company assets, loans and cash flow. This is useful in determining a company’s ability to afford debts.
Public Filings Summary – This lists all public filings for a company, including judgments, suits, liens and UCC filings. Full information on these filings are not available in the D&B report.

Not all of these sections will be available on a Dun & Bradstreet report. Some of them have to be requested. It is nevertheless important to know how your company stands in all of these areas when you decide to go into business with another company, or to understand Dun & Bradstreet reports are available to evaluate those companies before you make agreements.

Equipment Leasing vs. Equipment Loans

2008-03-17T11:28:00.000-07:00

Lease	Loan
Application Process
A lease application can be as little as one page for as much as $150,000 worth of equipment. Approval can occur within 24 hours.	Lenders tend to require multiple financial documents before reviewing loan applications for approval, such as tax returns and financial statements. This process can take several days
Costs Covered
Leasing covers the entire cost, including the equipment, tax, shipping and handling, installation fees or any other expense associated with the equipment.	Loans usually finance a portion of the equipment cost, neglecting excess costs in acquiring the equipment such as equipment tax, shipping and handling and any installation fees.
Types of Equipment
A lease will generally approve any type of equipment needed, regardless of its condition or whether it is new or used.	Lenders may be skeptical about financing equipment they are unfamiliar with, or equipment with low collateral or potential diminishing value.
Down Payments
There is no down payment. The first payment usually entails the first and last months’ payments	A down payment is required, separate from the amount covered in the loan. The first payment usually entails a down payment and the first month’s payment.
Interest Rates
The interest rate is fixed. Each payment is inflexible, being determined at the beginning of the lease. This simplifies budgeting, since lease payments are not susceptible to change.	The interest rate fluctuates. Payments may grow more or less expensive as the market changes, making it difficult to determine how much capital to dedicate to loan payments for a given fiscal year.
Collateral Requirements
Leasing requires no collateral assets aside from the equipment being leased. A lessor is only legally concerned with that aspect of the business being financed.	Banks often claim other equipment or real estate of the company as collateral to secure the loan. This can prove costly if the borrower defaults on a loan, as more than just the financed equipment is at stake.
Equipment Ownership
Leased assets do not appear on balance sheets, since the equipment is owned by the leasing company. This can benefit a company's financial ratio.	The equipment is owned by the borrower and appears as an asset on the balance sheets, which incorporates a degree of liability.
Additional Covenants
No extra agreements are made between the lessor and lessee. If payments are made on time, the lessor cannot demand immediate payment of outstanding debt or reclaim the equipment.	Extra covenants might be a part of a loan agreement. If any extra agreements are broken, a bank might demand full payment of the remaining balance on the loan, as well as impede use of the equipment being paid off. Future borrowing may also be restricted.
Tax Benefits
A lease usually allows for tax deduction of entire payments made toward the lease. If the equipment keeps its relative value during the lease and is purchased at the end, deductions can be made on depreciation thereafter.	A loan usually allows for tax deduction on a portion of the loan as interest. Tax deductions can also be made on the amount of depreciation attatched to the equipment. A borrower cannot deduct entire payments made on a loan.
End of Borrowing Term
At the end of the lease term, the lessee may choose to transfer the burden of equipment depreciation to the lessor or to keep the equipment. Purchase options for as low as $1 are usually offered.	At the end of a loan, the borrower owns the equipment and bears the risk of equipment depreciation. If the equipment becomes obsolete during the duration of the loan, it is still up to the borrower to make payments and dispose of the useless equipment.

Getting a Start-Up Company Ready for Financing

2008-03-11T12:17:00.000-07:00

One of the most important items for a start-up company is conservation of capital. Equipment Financing can lower the initial expenditures while helping the business obtain the necessary tools and equipment required to get the company growing. Getting financing as a startup is not easy, so here are some things a lender or equipment lessor look for to help you improve your chances for approval.

Have a strong credit rating or multiple guarantors

A lessor primarily wants to verify financial stability. Some start-up companies may already have an established short-term payment history, but since many do not, the lessor will be interested in the financial health of the owner or guarantor. It is a good idea to be familiar with the owner’s credit and financial history. If it is known that the owner’s finances may not be sufficient for approval, having a cosigner with strong credit can increase your chances at approval.

Maintain your financial agreements from the beginning

For companies a couple of years old, lessors will want to examine current spending trends for the company to verify its ability to make payments. This may include checking corporate accounts and/or obtaining a Dun & Bradstreet report. They are looking for evidence that monthly expenditures do not exceed the budget, and will look as far back as a year to check this. Lenders will often review the Dun & Bradstreet ‘paydex’ report for companies; this number measures the average punctuality of payments for a period of 3-12 months. It is wise to stay on top of your bills to make sure your score stays strong.

Your Investors are important

Some start-up companies are financed by owners with sufficient capital to support them, or take loans to start their business; many others have investors to help them get started. Financing sources are impressed when investors maintain an active role in the company, and that the investors also have healthy relationships with their creditors.

Have a strong plan of action

Lessors want to know that a business will survive, and may ask to see a business plan. Start-upsshould have a successful course of action for the company’s future and how it intends to grow as a business, whether or not a lease is required. A lessor has little reason to take an interest in a company that does not take an interest in itself.

Experienced officers are a bonus

Lenders like to see that the managing members of the company have had experience in successful business endeavors. Having an experienced officer/manager is impressive to a lessor and can increase your chance at approval.

While a lessor or lender may not look into all of these areas of a business, they are important factors for a start-up company to consider. Lenders will want to inspect every aspect of a business they can in order to get a clear picture of its future and ability to meet its obligations.

Is Equipment Leasing Best for You?

2008-03-11T12:08:00.000-07:00

When considering whether to lease or purchase equipment, it is important to weigh the disadvantages of equipment leasing with its pros. There are several aspects of the equipment leasing process which may sway your decision on whether or not to lease. These include higher cost through set payments, equipment equity, equipment depreciation and maintenance requirements.

Leasing can be more expensive

Initially the total cost you will pay for leased equipment is greater than the cost of purchasing, due to interest applied to payments. A $30,000 dollar appliance at an interest rate of 8% could total $35,856 on a three year lease.

Lease payments continue on contract

Whether or not you use the equipment, lease payments continue to be made each consecutive month. It is difficult to get out of a lease other than paying the remaining balance early.

You do not have equity on leased equipment

The equipment lessor owns the equipment until the end of the lease term, and thus retains equity. This can prevent you from receiving certain tax benefits that only the owner of the equipment can receive.

Equipment depreciates

You may opt for a dollar buyout option at the end of a lease. This would give you equity of the equipment, but if it has already depreciated significantly by this time and the advantages of having equity are diminished. It can also be difficult to get rid of the equipment once it has depreciated.

You still bear maintenance responsibility

Maintaining equipment can be expensive depending on the type of equipment. It may also be more expensive to neglect leased equipment by the end of the term.

Leasing equipment may be smart in some situations, but it is difficult to know if you do not understand the downside to leasing. Weigh both sides of the argument before deciding whether or not to lease because the success of your business is your highest priority.

Benefits of Equipment Leasing

2008-03-07T11:17:00.000-08:00

There are a number of reasons why equipment leasing may be smart for your business. Leasing is a form of financing similar to renting, where the lessor owns the equipment until the end of the lease term, at which point the lessee commonly has the option to purchase. In some cases of heavy capital expense, leasing holds a number of legal and financial advantages.

Reduced Upfront Expenses.

An equipment lease is paid for over time. These payments depend on the length of the lease term and interest rate applied to the lease. Payments often occur monthly, sometimes with deferred flexibility.
Tax Benefits.

Although the total amount paid for the leased equipment is greater at the end of the lease than if the equipment had been purchased at the time of acquisition, each payment is a capital expense and might be 100% tax deductible in each fiscal year an equipment lease payment is made.
Low Risk Interest.

Equipment leasing generally offers a fixed rate of interest, avoiding the risk of market fluctuation. The cost of each payment is decided at the beginning of the lease agreement and does not change.
Low Obligation.

The lessee also waives obligation to retain the equipment if depreciation over the lease term was extensive enough to decline a buyout option. This alleviates the lessee from the inconvenience of disposing of obsolete equipment.
Flexibility.

Equipment leases come in a variety of packages and can cover not only the cost of equipment, but also installation or any other services required. A lease program may also be tailored to your business’ specific needs. Options to purchase the equipment from the lessor at the end of the lease term also exist, sometimes for as low as one dollar.

It is important to weigh all options to determine the best course of action for your company’s future. Generally you should understand your plan for the equipment; equipment leasing has advantages when you want a piece of equipment without having to own it or that will depreciate in value. Remember that the value of most equipment is in its use and not in its ownership.

Equipment leasing is not optimal in all situations. Leasing equipment generally is not as beneficial for equipment that may have a relatively low cost or solid residual value. It is also important to see if your company can comfortably afford a large expenditure and whether the cost of interest on the equipment lease outweighs the tax benefits or capital gain.

How to Keep Your Credit Healthy

2008-03-07T10:33:00.000-08:00

Healthy credit is important for the primary guarantors (usually the owners) of a business. While important for anybody, many lenders pay attention to the credit health of the managing members of a company to determine approval and interest rates. Healthy credit can save money by lowering the interest rates applied. Important factors to consider when managing credit include the length of time required to establish positive credit, payment punctuality, expense moderation and attention to accurate activity.

It takes time to establish positive credit.

Healthy credit should be obtained gradually, preferably through a variety of scheduled payments such as for a cell phone, property lease and credit card simultaneously over a period of time. Be sure to keep your credit account with the longest history open even if it is not used, because it demonstrates a history of responsible credit use.

It is important to pay on time.

Scheduled payments at a specific time each month are an excellent way to accomplish this. Not only does it prevent negative credit reporting due to delinquency, but also provides an assurance of consistency important to lenders with whom you apply for a lease or loan. An ability to make consistent payments is an important way to help lower the rate of interest.

Avoid looking like you’re in trouble.

Trying to add on excessive charges quickly in an effort to improve a credit score will likely have the opposite effect. If charges occur on a credit card too frequently, or several charges on multiple cards, it may be seen as an effort to escape financial hardships. Try to avoid applying to multiple financial sources in a limited period of time.

Don’t be blindsided by your Credit.

It is important for businesses and business owners to check their credit reports regularly for false charges, unexpected changes in standing accounts or identity theft. A number of programs exist to provide monthly credit statements, many of which are offered by credit card companies. False charges can damage your credit health by increasing your monthly payments unexpectedly, perhaps on an old unused account that you neglect to check regularly. There may also be accounts that you forgot about or small balances that you forgot to pay off. Identity theft is of course an ever present threat that is especially damaging to business owners due to the generally large credit limits required to run a business.

Healthy credit scores are crucial to positive business.

Make sure you manage your financial accounts effectively. Avoid submitting multiple applications in a short period of time. It is easier to build and maintain a healthy credit score than it is to rebuild a neglected score that has lost its value.

Equipment Leasing Information - Trident Leasing Corporation

Equipment Leasing Tax Deductions

How to Read a TransUnion Credit Report

How to Read an Equifax Credit Report

How to Read an Experian Report

History of Equipment Leasing

How to Read a Dun & Bradstreet Report

Equipment Leasing vs. Equipment Loans

Lease

Loan

Getting a Start-Up Company Ready for Financing

Have a strong credit rating or multiple guarantors

Maintain your financial agreements from the beginning

Your Investors are important

Have a strong plan of action

Experienced officers are a bonus

Is Equipment Leasing Best for You?

Leasing can be more expensive

Lease payments continue on contract

You do not have equity on leased equipment

Equipment depreciates

You still bear maintenance responsibility

Benefits of Equipment Leasing

Reduced Upfront Expenses.

Tax Benefits.

Low Risk Interest.

Low Obligation.

Flexibility.

How to Keep Your Credit Healthy

It takes time to establish positive credit.

It is important to pay on time.

Avoid looking like you’re in trouble.

Don’t be blindsided by your Credit.

Healthy credit scores are crucial to positive business.