Financing your Commercial Bus
Commercial Financing
In a continuous effort to search for competitive finance rates, Central States Bus Sales, Inc., has put together a network of financial institutions to meet your needs at the lowest possible rates. Listed below are a variety of optional plans from which to choose:
Loan
Loan is an alternative to paying for in cash and is an agreement between a financial institution and the customer.
Benefits
- Flexible in financing structure (length of contract, skip payments, etc.)
- Borrower retains ownership in vehicle
- Maintain existing credit and working capital for the operating needs of your business
- Competitive financing rates
- 100% financing — customer, if credit approved, may finance motor vehicle fees as well as any applicable sales tax
- Customer may feel there are advantages in dealing directly with lender
- Customer may prefer to keep financial information confidential
- Simple process, easy for customer to understand
Considerations
- Lender is lien holder on title
- Debtor must carry collision and comprehensive insurance for full price of vehicle
Repayment Structuring
- Payments are usually structured in arrears
- Down payments (if any) are made payable directly to seller
End-of-Term Requirements
- Upon satisfactory completion of loan, lien is released; and unencumbered ownership is retained by borrower
Leasing
Leasing has become a popular way to finance new vehicle and equipment purchases. Customers have become more familiar with leasing as a financing alternative, and many customers request a leasing proposal.
A Lease is an agreement to acquire equipment or vehicles by the Lessee (end user/customer). The Lessee pays a predetermined periodic payment for the use of the leased asset and may have the opportunity to purchase the asset at the end of the lease.
Listed below are four basic types of leases — Operating Lease, Lease Purchase, TRAC Lease, and Municipal Lease. Most leases will fall into one or more of these categories based upon the type of residual or purchase option and the accounting and/or tax treatment of the Lease.
Operating Lease
An Operating Lease is often referred to as a True Lease. In an Operating Lease structure, the Lessee will pay a fixed periodic payment and will have the option to purchase the asset at the end of the Lease for a pre-determined price of its fair market value. The Lessee may also have the opportunity to renew the Lease for an additional term at a payment agreed to between the Lessor and Lessee.
Benefits
- Flexible in financing structure (length of contract, etc.)
- Maintain existing credit and working capital for the operating needs of your business
- Competitive rates
- Typically 100% financing — customer, if credit approved, may finance motor vehicle fees as well as any applicable sales tax
- Typically provides the lowest monthly payment
- May be treated as “off balance sheet” financing by customer
- Payments may be an expense for accounting and/or tax purposes
- Customer trades depreciation for lower effective interest rate
- For customers with Alternative Minimum Tax considerations, an operating lease may allow them to trade depreciation that they cannot use immediately for lower monthly payments
- May provide seller with remarketing opportunities at the end of the term
- Allows the seller the opportunity to control their equipment age and residual value
Considerations
- Lessor typically is owner/purchaser on title
- Lessee must carry vehicle liability insurance for a minimum of $1,000,000 and include Lessor as Additional Named Insured
- Lessee must carry collision and comprehensive insurance for full price of vehicle and include Lessor as Additional Named Insured
Repayment Structuring
- Payments are usually structured in advance
- Down payments are typically not made on Operating Leases
End-of-Term Requirements
- Residual must be fair market value or should at least approximate the fair market value of the equipment
- Lessee may be given the opportunity to renew the Lease for a set term at an agreed-upon payment
Lease Purchase
The most common type of lease, a Lease Purchase, typically has some type of nominal purchase price at the end of the term. In most cases, the Lessee will not be able to expense the payments for accounting or tax purposes. The customer will typically capitalize the asset, show the corresponding liability, expense the interest component of the payments, and depreciate the equipment.
Benefits
- Flexible in financing structure (length of contract, skip payments, etc.)
- Maintain existing credit and working capital for the operating needs of your business
- Competitive rates
- Typically 100% financing — customer, if credit approved, may finance motor vehicle fees as well as any applicable sales tax
Considerations
- Lessor typically is owner/purchaser on title
- Lessee must carry collision and comprehensive insurance for full price of vehicle and include Lessor as Additional Named Insured
- Lessee must carry vehicle liability insurance for a minimum of $1,000,000 and include Lessor as Additional Named Insured
Repayment Structuring
- Payments are usually structured in advance
- Down payments (if any) are made payable directly to seller
End-of-Term Requirements
- Upon satisfactory completion of the lease, lien is released; and unencumbered ownership is retained by borrower
- Lessee may purchase equipment for a nominal sum
- Renewal typically is not available
Trac Lease
TRAC stands for Terminal Rental Adjustment Clause and indicates a leasing structure available only for vehicles and the equipment mounted on them. TRAC is a tax designation and should allow the Lessee to expense the payments for tax purposes. With a TRAC lease the Lessor must assume some portion of the risk at the end of the lease, typically the first 10% – 15% of the risk based on the value of the equipment at the end of the lease.
Benefits
- Flexible in leasing structure (length of contract, skip payments, residual, etc.)
- Maintain existing credit and working capital for the operating needs of your business
- Competitive leasing rates
- 100% financing — customer, if credit approved, may lease motor vehicle fees as well as any applicable sales/use tax
- Lease payments may be tax deductible
- TRAC Lease programs normally require little, if any, advance payment
- Allows for Dealer participation
Considerations
- Lessor is owner on title
- Residual is a minimum of 20% of the original vehicle cost
- Lessee must carry collision and comprehensive insurance for full price of vehicle and include Lessor as Additional Named Insured
- Lessee must carry vehicle liability insurance for a minimum $1,000,000 and include Lessor as Additional Named Insured
Repayment Structuring
- Payments are usually structured in advance
End-of-Term Requirements
- Lessee may purchase the equipment for the pre-determined residual amount or return the equipment to the Lessor
- Lessee guarantees payment of residual in the event of a return of the equipment
- Vehicle is sold for “fair market value.” If the sale price of the vehicle exceeds the residual due, the excess proceeds will be credited to Lessee. If sale price is less than residual due, the Lessee will pay the shortfall, including any selling costs
Municipal Lease
Commonly referred to as a Muni Lease, this structure is generally available to the following types of customers:
- State Governments
- County Governments
- City, Town, or Village Governments
- Public Works Departments
- Sanitation Departments
- Solid Waste Districts or Authorities
- Municipal Hospitals
- Municipal Prisons
- State Universities
The transaction must be statutorily permissible under local, state, and federal laws and must involve equipment essential to the operation of the municipality.
If structured correctly, the Lessor may enjoy an exemption from paying federal and/or state income taxes on the interest income associated with the lease. A not-for-profit entity such as a hospital, college, or university may be exempt from paying sales or income taxes but will not qualify under this structure.
Benefits
- Flexible in leasing structure (length of contract, skip payments, timing of payments, etc.)
- Allows municipal borrower to level out capital expenditures from year to year
- Competitive leasing rates
- 100% financing
- Payments may be structured to meet revenues, i.e.: Annual, Semi-Annual, Quarterly, Monthly
- Payments may be structured to start in the next fiscal year, allowing the municipality to acquire the equipment without having current funds appropriated
Considerations
- Lessor is lien holder on title
- Lessee must carry collision and comprehensive insurance for full price of vehicle
- Lessee must carry vehicle liability insurance for a minimum of $1,000,000
Repayment Structuring
- Payments may be structured in advance or in arrears
End-of-Term Requirements
- Residual is typically $1.00