Church Equipment Lease Programs ....
22 June 07: We finance many types of equipment for ministries [learn more]
17 Dec 06: Our new web presence begins ....
Question about Church Equipment Leasing:
What is a lease? - An equipment lease is a fixed term rental
contract that allows businesses and non-profit entities to use
equipment in return for monthly rental payments. Ownership of the equipment
is retained by the leasing company unless
the lessee exercises a purchase option at the end of the lease.
What is the interest rate? - This is probably the most
common question asked about leasing and is usually the result of a lack
of understanding of the nature of a lease. As noted above, a lease is a
rental agreement. Money is not
being loaned to the customer to buy equipment. We are buying it for their
use. So, there is no “interest rate” in the usual sense, as
people are generally asking for an A.P.R. with that question. We can calculate
what our industry terms ACML or Annual Cost of Maintaining a Lease. This
is merely a modified simple interest calculation. Generally, for church
transactions the ACML will run around 10% for transactions under $15,000
and as low as 5-6% for large transactions in the $50,000 and up range, depending
on the term of the lease. ACML is a percentage of the cost of the equipment
on a per year basis.
What happens to the equipment at the end of the lease?
- For our Church Lease/Finance Program, we assume the church intends to
own the equipment at the end of the lease. There are several options: 1)
Continue leasing the equipment at the
current monthly price. 2) Return the equipment and end the contract. 3)
Upgrade to newer equipment and start a new lease. 4) Purchase the equipment
for the preset amount of $1.00.
What other benefits are there in leasing? - 100% Financing:
No down payment ...Leasing covers 100% of the equipment cost, and can even
cover extra costs like shipping and installation. Conventional financing
usually requires hefty down payments and additional collateral, while leasing
only requires one or two payments in advance. The equipment is put to work
immediately with minimal up-front costs. Keep Credit Lines Open:
Churches often have multiple financial demands and require a variety of
sources of funds. Available bank lines are generally better utilized for
non-leasable items such as building projects, and repairs and improvements.
“Off Balance Sheet” Financing: A church’s financial
strength and credit worthiness (like a commercial business) is often judged
by the debt shown on its financial statements. Too many outstanding loans
make it a poor credit risk. Conventional financing increases the debt shown
on a church’s balance sheet, but leasing does not because it is typically
treated as a monthly operating expense. Fixed Payments:
In the past interest rates went from 9% to 21.5% in a single year. Unlike
bank lines of credit, with variable rates, lease payments are fixed - no
matter what happens to the market tomorrow. Tightening Credit at
Local Banks: Crisis, mergers and acquisitions in the banking industry
are causing local banks to tighten up on their lending - even with their
best customers. Many businesses and institutions are growing tired of being
at the mercy of their banks when they need equipment and are finding better
service from leasing companies. Flexibility: Lease payments
can be structured to meet the customer’s needs. For example: No payments
for the first 90 days, or half payments for the first year, or no payments
during the summer, etc...
Can the lease be “paid off” early? Technically,
the short answer is no, but the balance of payments due may be paid at any
time. The concept of “pay off” is the result equating leasing
to lending (See interest question above). The reality is our
underwriters generally will allow churches to terminate their leases before
the end of the term as a “professional courtesy”. Since leases
are structured on a stream of payments versus principle and interest basis,
any benefit to an “early pay off” will be expressed as a discount
of the balance of the stream of payments. Typically there is no discount
in the
first twelve months. After that the discount usually increases up to the
middle of the term, e.g.: 18 of 36 months, 24 of 48, 30 of 60, and then
begins to decrease as the lease gets closer to the end of the contract.
Lessors are prohibited by Federal Regulations from issuing any type of schedule
or predetermined discount plan. Any early termination is handled as its
own case. Again, this is not a set program, but a courtesy that may be extended
at the discretion of the lessor.