When acquiring equipment, how do you determine which type of financing would be right for you? Considering the following points will help you identify your financing needs.

What are my long-term goals?It is extremely important to outline your long-term business goals to ensure that your finance package fully meets your needs.

How long will the equipment be required?Matching the term of a credit facility with the length of time the equipment is expected to be utilized will save you from making payments on an idle asset.

Do I want to keep or turn-in the equipment at the end of the term?There are financing options that offer the flexibility to own the equipment at the end of the term or to return it to the lender. Typically, a lease that allows you to turn the equipment back to the lender at the end of the finance term will carry a lower monthly payment than a lease that requires repaying the full principal.

What is the amount due at closing?A lender can require funds to be paid by the borrower at closing. These fees can include security deposits, advance payments, and documentation fees, taxes, freight, and registration fees. Many borrowers will opt for a lease over a loan, as upfront costs with a lease can be lower than those of a loan. Leasing can often provide 100% financing of the cost of the equipment and can include the soft costs.

How long is the lease?Common financing terms range from 6 to 84 months and are available in 12-month increments, such as 24, 36, 48, 60, 72 and 84 months. Lenders will sometimes limit the finance term based on whether the asset being financed is new or used. A financing package will generally not exceed the useful life of the equipment. Structuring the term will have the largest impact on your

Speak to an XFS representative to find your ideal equipment financing solution.

Call XFS at 800 550-0240 or e-mail info@xfsinc.com.

Is there an evergreen clause in my finance documents?An “Evergreen Clause” allows a lease to automatically renew for subsequent periods of the same length of time as the initial term, unless either party gives the other a written notice of termination within a certain pre-designated time.

Is there interim rent?Interim rent is the rent you pay for the daily use of equipment between when you take “Acceptance and Delivery” of the equipment and the lease start date.

Can I pay the finance facility off early?This varies, depending on the lender and type of credit facility. Some facilities will require the payments to be made regardless of an early payoff. Some lenders will offer a discount on the amount owed in the event of paying off the financing early, whereas others will charge a prepayment penalty based on the outstanding principal balance. There are also credit facilities that only require a small termination fee (usually $250 - $300) to pay the lease off early.

Does the payment match my budget?As with any business expense, consider the monthly cost of a piece of equipment and how it fits into your budget. There are many creative payment options available, including some that allow you to lower seasonal payments or to defer the first few months’ payment with the commencement of an upcoming contract.

Can the company use the depreciation or is it more beneficial to expense the payments?*The tax treatment of a financing arrangement is an important consideration when choosing between a lease and a loan. A loan provides you with the depreciation tax benefit whereas typically with a lease, the lessor owns the equipment and realizes the tax benefit. This is usually reflected by a lower monthly rent payment for your business as well as the ability to expense the payment. In many instances, if your business cannot use the tax benefit, leasing can be a better option since you can trade the depreciation to the lessor in exchange for better cash flow.

monthly payment - the longer the term, the lower the payment.

Although these are the standard industry terms available, most lenders will permit other terms, such as 39 months. Companies can match revenue to their payments by structuring their financing accordingly.

Furthermore, if your business is planning for growth, you can enter into a master lease that will allow you to acquire multiple pieces of equipment with multiple equipment schedules, all comprised with the same basic terms and conditions.

What happens at the end of the lease?Borrowers can select between an open-end lease and the more common closed-end lease, which allows a business to return the equipment at the end of the term.

With open-end leases, payments are typically lower than closed-end finance transactions, however the borrower assumes some of the Lender’s risks at the end of the term. In an open-ended lease, the residual value is only an estimate of the future value of the equipment and the borrower is responsible for the fair market value of the equipment at the end of the lease. If the equipment is worth less than the estimated residual value, the borrower is required to pay the difference. Careful considerations should be made when determining what residual is used in a financing agreement.

In both cases, make sure to read all of your finance documents carefully so as to fully understand what “return provisions”, “normal wear and tear”, and “excess wear” are.

What is the maximum equipment hours allowance and what are the costs for exceeding the allowance?Commonly, leases allow 1,000 hours before you trigger charges per hour (these can range from $15 to $30 per hour). Remember that the hours allowance can be negotiated when applying. This is often more cost-effective than incurring the hourly charges when the allowance is exceeded.

Speak to an XFS representative to find your ideal equipment financing solution.

Call XFS at 800 550-0240 or e-mail info@xfsinc.com.

*The information provided herein is for informational purposes only, and is not intended to substitute for obtaining accounting, tax, legal, or financial advice from a licensed professional. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your situation. **Terms and conditions apply. Financing to qualified buyers. Subject to change without notice. Ask for further details. 01/2016 V1