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Leasing Payment Terms

“Depending On Your Business, There Can Be A Variety Of Payment Term Options”

The most common form of lease repayment,  similar to any type of loan or mortgage, is a monthly repayment of the principal and interest associated with the lease outstanding.

But there are also other potential payment options that can apply to your particular business.  The key is that they make sense to the lender as well as your own cash flow.

For instance, it is possible to get quarterly, semi annual, and annual lease payment schedules.

You may be able to arrange monthly payments for your “in season” period and no payments out of season.

Repayment terms other than monthly are most common with seasonal businesses such as farming, road construction, and so on.

From the lease company’s point of view, the most important thing they are going to be looking at when considering a payment term other than monthly is the historical proof of how your cash flow comes in.

This is typically done with bank statements showing large amounts of deposits in one part of the year than another.

This can also be supported by contracts and statements of account from customers that are paying you at certain times of year.

In addition to the timing of lease payments through out the term, there are also other payment aspects that can also be adjusted or modified as well.

For instance, when you first sign up for a lease, there may be options to delay the first payment by one or two months, assuming there is a rationale for doing this.

Also, during the lease term, if there is a cash flow crunch you may be able to defer one or more payments for a series of months with a plan to catch everything up in the near future.

The amount of the payment can also be adjusted by what we refer to as a balloon payment at the end of the lease.

Depending on the applicant, the amount of financing, and the asset involved, there are leasing companies that will allow 35% to 40% of the principal amount of the purchase price to be deferred for repayment until the end of the lease term.  Balloon payments are usually classified as operating leases if the balloon amount is at least 10% and capital leases if less than 10%.

This can potentially reduce the lease amount considerably during the term which will benefit the cash flow of the business.

Getting back to payment interval, if a leasing company is going to accept something other than monthly, its likely that the industry you are working in will also be factored into the equation.

For instance, if you are working in an industry where the standard for payment is throughout the year, then it’s very unlikely that a non monthly payment option will be extended.


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Seasonal Payments For Construction Equipment Leasing

Seasonal Payment On Construction Equipment Leases Can Greatly Improve Cash Flow Management

Leasing construction equipment is a great way to gain a high amount of debt financing leverage for your business.

At the same time, if the construction work you undertake is seasonal like many construction companies, then you’re likely going to have a seasonal income stream.

With most debt financing facilities monthly debt servicing is required to cover off the interest expense and pay down the principal balance.

One of the advantages of securing construction equipment financing is that lease repayment schedules can be arranged for seasonal cash flow such as semi annual payments or even annual payments.

Another alternative is monthly payments for the construction season, but with the monthly payments adjusted to include the interest and principal required for the whole year.  In this way, there would be no payments required in the off season months, making cash flow much easier to manage.

Operating Leases Can Also Help With Construction Cash Flow Management

Another way to further improve the cash flow of you business is by structuring your construction equipment leasing facility into an operating lease where by a portion of the principal, likely between 10% and 30%, is not factored into the repayment schedule during the term of the lease.

The scheduled payments would only include the interest cost incurred on the total principal outstanding as well as the principal portion that is to be repaid during the lease term.

Once the lease comes to an end, if the business wishes to retain the equipment, it would have to pay out the deferred principal portion or balloon payment in cash or refinance it in some other manner.

By structuring a construction equipment lease in this fashion, the business is taking the least amount of money out of its cash flow to service equipment lease payments.

For more information on the different ways we can work with you to structure a construction equipment lease to meet your unique requirements, please give us a call and we’ll go through the available scenarios with you and get all your questions answered right away.


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