Meeting Your Accounting, Tax
and Cash Flow Needs

Let American Bank Leasing's professionals suggest a lease structure that will best meet your accounting, tax and cash flow needs.

On this page:

• Finance Lease
• True Lease
• Comparison

Finance Lease

This lease structure is often the best option when the lessee intends to keep the equipment at the end of the lease (e.g., for equipment expected to maintain a high residual value) and wants to retain the tax benefits of ownership (such as the bonus depreciation that expires 12/31/2004). Although monthly payments tend to be slightly higher than those of a True Lease, the lessee builds equity in the equipment. At lease-end, the lessee purchases the equipment for the predetermined fee (either $1.00 or 10% of equipment cost).

True Lease

This lease structure is often the best option when the lessee wishes to defer the decision about ownership of the equipment until lease end (e.g., for equipment vulnerable to obsolescence). Monthly payments tend to be lower than those of a Finance Lease, and the lessee has three options at lease-end: purchase the equipment (at Fair Market Value); return the equipment, or renew the lease.

To protect yourself from ambiguous "fair market value" options, consider a TRAC Lease (for vehicles) or a PRO Lease (Purchase or Renewal Option). Contact us for more information.

Comparison

In addition to differences in payments and purchase options, the two lease structures differ with respect to tax and accounting implications. Here is a summary:

[ Click here to view the following table in its own window ]

Comparison Also known as: Lease-Purchase Operating Lease What can be expensed? depreciation and interest entire lease payment Who retains risk of ownership? Lessee Lessor Who is eligible tax benefits? Lessee Lessor Must the equipment be capitalized on balance sheet? yes no [1] Payment amount is: higher lower Buyout amount is: lower higher At end of lease: Lessee owns the equipment Lessee has three options: Purchase, Return or Renew Buyout Options: $1 Buyout 10% PUT Option Fair Market Value [2]

[1] Please consult your tax advisor.

[2] ABL suggests structuring your True Lease as a either a PRO Lease or a TRAC Lease, to protect yourself against unkown Fair Market Value options. Contact us for more information.