Cash in your pocket:
 As you’ll see in the following examples, the 2008 tax incentive bill can help you keep cash in your pocket, whether you choose to finance your new equipment with an operating or capital lease.  How much can you save?  As the chart illustrates, the first year cash savings is on average a whopping 28% of the equipment cost.

Choosing the correct lease for you:
To get the benefits under the 2008 Economic Stimulus Plan, financing must be a loan or capital lease for tax purposes (a standard $1.00 buyout qualifies) and the machine must be placed in service by December 31, 2008.    As you’ll see in the following example, you can acquire new equipment in 2008 – using either a capital or operating lease – and still have cash in your pocket.

The example:
              Equipment Cost                                    $ 400,000

              Lease structure                                     $ 1.00 buyout

              Monthly Payment                                  $ 7,700 per month

              Down payment                                      First and last payments  ($15,400)

              Equipment Acceptance Date              September 30, 2008

Cash flow savings on a capital lease:
Imagine getting a $400,000 piece of equipment for a cash outlay of only $30,800 in 2008.  You could do just that with a capital lease, assuming a lease payment of $7,700 per month (first and last month’s payments, as well as payments for November and December).  In addition, your tax savings would be $117,500, which results in an $86,700 positive cash flow for you after taxes – money you can use to run your business.

Of course this example only shows the first few months you have the equipment: what happens after that?  In this scenario, it takes an additional year before you have to go into your pocket to make payments. That gives you an additional year to produce revenue from the machine in order to make the remainder of the payments.

Lower financing costs:
The other way the proposed tax benefits can help your cash flow is by entering into an operating lease (fair market value purchase option at end of lease). Here the lender is the owner of the equipment for tax purposes and, as a result, they get the benefit of the additional depreciation for their account.  In exchange, however, you receive a lower monthly lease payment.

How much can you save?  Using our previous $400,000 example, you would save nearly 1% on your financing rate.  Without the benefit of the Tax Stimulus Plan, your monthly lease payment on this $400,000 equipment would be approximately $6,300.  However, with the tax incentive, your payments would drop to $6,125 per month, saving you $10,500 over the term of the lease.  

In addition, by choosing an operating lease rather than a capital lease, you would save an additional $94,500 over the term of the lease ($7,700 - $6,125 = $1,575 x 60 months).   If you wanted to purchase the equipment at the end of your lease, that savings would be very close to the expected buyout.  If not, you have saved $94,500 over 5 years. 

In both examples we would suggest you contact your accountant to see the exact impact on your company.

Using Systems Financial Credit:
If you are interested in exploring your options as they relate to the 2008 Economic Stimulus Act, please call us.  At Systems Financial Credit, we offer application-only financing up to $350,000, as well as one day credit approval.  In addition, we custom tailor financing/leasing packages based on YOUR specific needs from skip payments and extended payment terms to smaller advance payments, prepayment options and more – all at highly competitive rates.