Frequently Asked Questions
If you are researching equipment finance companies or equipment leasing in general chances are you have several questions and would like a great resource to assist in your decision making.
Below are several questions that are frequently asked of us. If you don't find your question answered here feel free to call or send an e-mail, we will respond promptly.
What is leasing?
Leasing an asset offers significant potential advantages over purchasing that same asset. It conserves working capital, liquidity and credit lines and offers 100% financing. A "true" lease (as more fully described below) offers "off balance sheet" treatment and is treated as a monthly expense. As a result, the entire lease payment is tax deductible. Because the lessor becomes the owner of the asset, it can depreciate that asset. These depreciation benefits allow that lessor to lower the lessee's monthly lease payments.
What is the pricing of leasing?
Depending on the ultimate structure of the lease, it is very likely that the overall cost of leasing an asset may be less than the cost of borrowing funds to purchase that asset. Many first time leasing customers do not realize this until we have an opportunity to present our lease proposal. Even the largest, most financially sophisticated, corporations lease capital equipment (including rail cars, aircraft, marine vessels, machine tools, rolling stock, communications equipment, construction equipment, medical equipment, food processing equipment, etc.)
I am worried about equipment obsolescence. Will leasing help reduce this risk?
Companies in highly competitive environments often need the most technologically advanced equipment available and cannot afford to be burdened with out dated or obsolete equipment. Leasing transfers the risk of equipment obsolescence from the customer to the lessor. In addition, at the end of the lease term,the equipment can usually be returned to the lessor without penalty. As a result, the customer is then able to acquire new equipment which is faster and more efficient.
Who owns the leased equipment?
The lessor, is the owner of leased equipment until you choose to purchase the equipment at the end of lease term.
Do you finance all types of equipment in every state?
We are able to offer equipment financing in all 50 states for nearly any type of equipment. Although we do have several industry specific focuses we can also act as a general equipment finance company.
Why should I lease with First Star Capital?
We believe that our flexibility and creativity are our greatest strengths. As a result, we look forward to customizing financing alternatives which make good business sense for our customers and which help us to establish long term relationships. We work closely with both existing as well as prospective clients to establish the most beneficial financing structure.
Tax & Accounting
What about sales tax?
Leasing is sometimes used as a way to defer payment of sales tax. Sales tax is calculated on the base lease payment and included in the total monthly payment. This will make the initial expense of a purchase lower (in many states the sales tax rate is 7% - 10%).
What are the tax advantages of leasing?
In some instances the monthly lease payment is treated as an operating expense and creates a "line item deduction" against revenue. In other instances the equipment is depreciated and written off over the useful life of the asset. Because every business is unique, we encourage you to seek out a qualified accountant to assist with the specific situation regarding your business or organization.
What will leasing look like on my balance sheet?
Balance Sheet Item or Footnote: Equipment purchases often cause a company to be out of compliance with the ratios outlined in loan covenants (liquidity, debt-to-worth, etc.). In some kinds of leasing, neither the asset nor the corresponding liability are reflected on the company's balance sheet. The monthly lease expense is reflected solely on the income and cash flow statements. The lease obligation is described in a footnote to the company's financial statements.
Structure of the Lease
What do I need to get started on a $70,000 equipment purchase?
A signed and completed one page credit application. We can issue approvals for up to $100,000 based upon the application alone. Certain programs can qualify for up to $250K on an "application only" basis.
Are there any fees or charges that I should know about before signing?
We believe in doing business in a forthcoming manner with no surprises. All fees and charges (usually only a small administrative / documentation fee) are disclosed in an easy to read invoice included in your document package.
What about the initial cash outlay?
Normally, leasing involves a lower initial cash outlay than would ordinarily be required in a loan. The classic lease would require only the first and last months payments in advance, which is usually far less than a typical down payment of 10%- 25% of the cost of the asset. In addition, freight and installation costs can usually be financed within the lease structure.
How long does the process take?
With most transactions that are under $100K the prequalification process is completed within 1 - 2 business days. We will then issue the final documentation and when the equipment is delivered we are ready to pay the supplier. In most cases the financing only takes a few days. The longest lead time is typically associated with the equipment availability.
How is a lease structured?
A lease is flexible and can be tailored to your business needs. Lease terms typically range from two to seven years. Payment schedules can be fixed or timed to fit your needs. The most common is equal monthly payments.
When does the lease start?
When the equipment has been delivered and is operational. We will conduct a "verbal authorization" where you will instruct us to pay the vendor and commence the lease.
Are there any down payments required at the beginning of a lease?
The first and last payment is usually required, plus any documentation fees.
Credit & Rates
What factors are used to determine credit worthiness of the business?
The length of time in business, references from bank and trades, Dunn & Bradstreet and credit bureau ratings.
How do your rates compare to your competitors?
Although we would love to have the lowest prices in every instance, we know it is impossible to achieve. We carefully set our lease rates at a competitive range depending on the size of the transaction, equipment type, credit quality and other factors. Our lease rates are often on the lower end of the spectrum due to the outstanding performance of our portfolio (minimum losses).