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Lease Types

Operating Versus Capital Leases

Operating Leases are conventional leases and payments are treated as an expense item and do not appear as a liability on the Company's balance sheet or credit report.  These leases allow you to deduct the entire amount of the lease payment as an expense, and the payment amount is usually less than a bank loan or Dollar Buyout Lease. 

Capital Leases are really a loan presented as a lease.  You can only deduct the interest charge as an expense item, and the payment amount is typically the same as a loan. 

Fair Market Value Leases

Fair Market Value Leases are the most common and are often referred to as an Operating or True Lease.  The advantage is it gives you the opportunity to keep, return or extend the equipment's lease.  This lease is one of the best for television production equipment as technology evolves, the equipment tends to lose a great deal of it's value quickly.  At the end of the lease you may want to replace it with something that is more in demand or extend the lease to pay down to a point where you can purchase it for $1 or a more reasonable price.  This lease allows you to deduct the payments on your taxes, plus the amount of payment is typically less than a traditional loan, or the Dollar Buyout Lease. 

Dollar Buyout Lease

Also known as a Capital Lease, this is essentially a loan structured as a lease so at the end of it, you can purchase the equipment for one dollar.  If your intent is to keep the equipment at the end of the lease, this may be the best choice.  The disadvantages are you do not get the tax advantage of being able to deduct the payments, plus the payment amounts are about the same as a conventional loan.  This lease also shows up as a liability on your company and personal credit profile if you personally guarantee it.

Purchase Upon Termination Lease (PUT Lease)

PUT (Purchase upon Termination) Leases are Operating Leases and are essentially the same as Fair Market Value leases.  The difference is the purchase price at the end of the lease has been pre-negotiated, typically 10% to 20% of the purchase price.  The pre-negotiated price, also referred to as the residual value, allows a company to know exactly what the cost of the equipment will be if they choose to keep it at the end of the lease.  The Purchase Upon Termination lease reduces monthly payments compared to a traditional loan, plus it has little to no effect on your credit profile.

Lease Back

Lease backs are essentially a financial program in which we buy equipment that is fully owned by your company, giving you instant working capital, and then lease it back to your company over a specified period of time.  The Lease can be a Fair Market, Purchase Upon Termination, or Dollar Buyout, however, there may be more scrutiny of your finances.  The end result is you have new financial flexibility through a strong cash reserve.