STRUCTURAL BENEFITS

Financing or leasing equipment rather than paying cash may offer a number of benefits when structured consistently with your tax strategies. With an operating or “true” lease, your monthly payments may be deducted as an operating expense. Alternatively your business may wish to retain its tax benefits with a finance lease or an equipment finance structure.

Benefits of Leasing

As you place a higher value on your working capital and need for liquidity, equipment finance should become an integral component of your capital structure. For example, leasing accounts for approximately one-third of all capital expenditures in the United States.

• Conserves working capital—your cash is not tied up in equipment but is free for income-producing investments or other uses.
• Covers all equipment costs—you can potentially finance up to 100% of your assets, including additional expenses like installation, maintenance, freight, and taxes.
• Makes it easier to upgrade equipment—since you don’t own the equipment, you can upgrade at the end of your lease.
• Tax savings—you may be able to deduct your lease payment as a business expense to assist in managing depreciation schedules and Alternative Minimum Tax (AMT).
• Avoids rapid equipment obsolescence—at the end of the lease term, you may have a choice to purchase the asset, renew the lease, or walk away.
• Favorable accounting treatment—certain lease structures can achieve off-balance sheet accounting treatment.
• Debt covenant compliance—can help with covenant compliance and other obligations.
• Preserves other credit lines—bank lines and other credit facilities remain available for other needs.
• Fights inflation—transactions can be structured so that costs remain the same over the life of the agreement regardless of increases in equipment prices or interest rates.
• Matches financing with equipment life—lease terms are typically tied to the assumed useful life of the individual asset.
• Provides flexible source of capital—leases can be structured as either a fixed rate or floating rate obligation customized to meet your specific needs.

Tax-Oriented Leases

Tax-Oriented leases can benefit a range of businesses, especially those looking for the best use of their available capital. In many cases, it is desirable to trade off tax benefits, such as depreciation, for lower lease rates.

At Wachovia, we can customize the following structures to meet your equipment financing needs:

• Tax benefit trade off for below market lease rates
• 100% lease payment may be expensed
• TRAC leases
• Assistance in complying with IRB capital expenditure limitations
• Fixed or floating rates
• Lease term closely matched to economic life of equipment
• Operating leases/off-balance sheet treatment
• 100% of asset cost funded (including some soft costs)
• Equipment lease lines available

Finance Leases/Equipment Secured Loans

With a finance/capital lease or a note and security agreement/loan, you’re offered a definite term with a predetermined balloon. These options offer distinct advantages:

• Company retains all tax benefits
• Generally available for longer terms, allowing greater flexibility
• Offer a predetermined, fixed balloon to purchase equipment at the end of the lease term
• Opportunity to gain a new source of funding while preserving existing lines of credit
• Annual expense consists of fixed payments, allowing the company to manage budget limitations
• Accounting and budgeting are simplified—you determine the amount of time you will have the equipment, as well as your expenditure
• Both fixed and floating rates are available
• Equipment funding lines are available

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