We offer four financing types: Terminal Rental Adjustment Clause (TRAC) Leases, First Amendment Leases, Capital Leases and Equipment Finance Agreements. The first two types of financing are very similar.
Our TRAC and First Amendment Leases are typically 36 to 60 month rental contracts which specify the monthly rent amounts and an end-of-term residual payment equal to 10% to 20% of the original amount financed. At the end of the rental tern, the lessee may purchase the equipment by paying the residual or turn in the equipment. As a matter of practice, we also offer refinancing of residuals, effectively extending the life of the transaction until the outstanding residual is one dollar. Nearly every TRAC and First Amendment Lease completing its full term ends in the sale of the equipment to the lessee or in a refinance. TRAC Leases apply to leases containing only titled trucks and trailers. First Amendment Leases are used for financing leases in which one or more of the assets are non-titled. TRAC and First Amendment Leases provide depreciation tax benefits to the asset owner, while lessees are typically able to deduct their entire monthly payments for tax purposes.
Capital Leases behave slightly different. The residual of a capital lease is one dollar or one-hundred and one dollars. Because of the low residual, lessees are in effect paying down the entire amount financed with no balloon payment remaining. Capital Leases can be used for titled and non-titled asset leases. Capital Leases do not provide depreciation deductions to the asset owner; rather lessees are often able to recognize the tax benefits.
Lastly, an Equipment Finance Agreement (EFA) is an alternative financing option to traditional lease operating agreements. Similar to the lease agreement in many ways, there is one important difference. Unlike the lease agreement where the lessor retains ownership of the equipment and the lessee may have the option to purchase at the end of the term; the borrower retains ownership of the equipment financed throughout the term of the agreement using an EFA. In some cases an EFA is a nice alternative to an equipment lease depending on which state you live in.
Call us today to find out which option is best for you!
816-888-4000