Equipment Finance Agreements
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The Equipment Finance Agreement is one of our most popular products. Similar to the lease agreement in may ways, there is one important difference that deserves discussion. 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. The underwriter simply files a UCC with the appropriate agency and the equipment is used as collateral through out the term. Proof of insurance may still be required based on the criteria of the agreement.
As always, we suggest that you discuss the implications of your method of finance with your tax advisor. We have found in some cases that an EFA is a nice alternative to an equipment lease depending on which state you live in. For example, the State of Georgia has a curious tax code that is written such that when a local taxing authority assesses a personal property tax at the end of each year, the lessee must also submit use tax that is added to that amount. Essentially it is double taxation for leases in Georgia since the state considers any amount collected by the lessor as a stream of income to be taxed, even though it is a pass through tax that will be payed to the local taxing authority. An EFA avoids this issue since you are the owner of the equipment instead of the underwriter, this addditional amount would not be due.
Another advantage that many of our clients appreciate is the fact that with an EFA, the client is responsible for any sales, use, property, or other taxes that may be due without having to pay them through the underwriter. Some underwriters quietly charge a small service fee for collecting and remitting taxes that are due on a lease agreement.
An EFA may be the perfect solution for those who have experienced a dispute regarding the final purchase option price at the end of a lease agreement in the past. With an EFA, since there is no purchase option, there is no chance of dispute; you already own the equipment!
Finally, our EFA's come with all of the flexibility of our lease agreements and none of the headaches of a standard bank loan. Meaning that you no longer have to wait until you have saved 20% for a down payment or have to worry about total exposure issues with your local bank.
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