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Operating Lease vs. Capital Lease

Many business owners and executives want to know: what’s the difference between an operating lease and a capital lease?

Think of an operating lease as a rental agreement.  As a business owner, you don’t own the equipment but can expense your lease payments.  This allows you to lower your overall tax burden and keep the equipment off your balance sheet — otherwise known as “off balance sheet financing.”

A capital lease is also known as a financial lease or finance agreement.  You cannot expense the lease payments, but you can put the new equipment into your asset base and depreciate the asset to lower your tax burden.  You can also take advantage of IRS Section 179 deductions with a capital lease.

Both types of leases can help you get access to the resources you need to operate more efficiently, conserve your working capital and not impact your bank lines of credit.

Insights from NAELB Convention

By Brad Bayless

I attended the annual National Association of Equipment Lease Brokers (NAELB) convention in Denver last week with great enthusiasm among attendees.  Of the eight meetings I had with company representatives, all eight expressed optimism about increased equipment leasing  — with everyone’s Q1 activity substantially higher than Q1 of last year.  We continue to be busy executing lease agreements for clients and are excited to see what the remaining quarters of 2012 will bring.

ELFA Funding Conference Update

By Brad Bayless

Just back from the Equipment Leasing and Finance Association (ELFA) funding conference in Chicago where optimism was in the air. Conference attendance was up 20% over last year and the overall mood was upbeat. Conversation centered around deal flow and increased lending activity.

I’m off to the National Association of Equipment Leasing Brokers (NAELB) conference on Thursday right here in Denver and look forward to more positive discussion about the growth in the industry.

More Companies Optimistic About Economy & Hiring

According to a recent article by the Associated Press, “A growing number of chief executives at large U.S. companies say they are more optimistic about the economy and plan to step up hiring. The brighter view from the boardroom comes after the best three months of job growth in two years.”

We see this as a good sign that the economy may have turned a corner and many companies will be looking to make significant investments in technology, operational improvements and talent.  If your company’s entering into a growth mode, you will have to decide whether to conserve or utilize your working capital.  Should you secure a line of credit or bank loan?  Lease or pay cash?  The timing is right to consider how you will invest in the necessary resources to grow your business without over-leveraging.

Read the full article: “More CEOs of big companies say they’re in a hiring mode.”

Positive Economic Outlook

The metro Denver employment outlook for the second quarter is the 5th best in the nation, according to the latest regional employment survey, released March 13. Not only are companies across a variety of sectors making a significant investment in human capital, many are loosening the belt on expenses in other areas such as equipment and technology to enhance employee productivity.

Companies may seek to lease the equipment necessary for this growth and expansion, while conserving their working capital. As the economy trends upward and businesses are reinvigorated, the cycle for equipment replacement is underway with a variety of commercial financing options available.

DFI Adds Brad Bayless as Vice President

Brad Bayless, a 20-year veteran of the equipment leasing industry, joins DFI as Vice President.

“We are thrilled to bring Brad on board as we continue to grow our business and welcome his years of expertise in the industry,” says Jim Tarbell, President of Dynamic Funding, Inc. “We are seeing an uptick in business expansion and job creation and look forward to supporting companies in their growth strategies and with the equipment necessary to operate their businesses.”

Tax Relief Act of 2010 Ending Soon

We have had an exciting time here in the leasing industry this year. There is a lot of excitement about potential growth of the economy in 2012. One thing that we wanted to make sure that everyone knew about for 2011 was the Tax Relief Act of 2010 which expires December 31, 2011. Under the Section 179 Deduction provision you are allowed to expense up to $500,000 as a deduction as opposed to the $250,000 normally allowed.  This deduction is allowed as long as you do not have purchases expensed over $2,000,000. Both new and used equipment are eligible for this deduction.

There is also a Bonus Depreciation incentive available until the end of 2011. This allows you to write off  100% for capital expenditures and depreciable property. This incentive only applies to new equipment. In order to qualify for 100% depreciation, the equipment must be delivered by December 31, 2011.

Have a question on how to maximize your savings using this provision? Go to the Section 179 website at

http://www.section179.org/.

Equipment Leasing and Financing Association Conference

I just returned from the 50th Annual convention of the Equipment Leasing and Financing Association (ELFA), which was held at the JW Marriott in San Antonio, Texas. There were nearly 1,000 attendees, up significantly from previous years.

The general mood at the convention was very upbeat, both in terms of the improving economy, but more importantly, the state of the Equipment Leasing Industry. The feeling is that businesses are returning to the mindset of having to acquire business assets, after scaling back purchases for the last few years. Since they have survived some difficult economic times, where “cash is king”, the option of acquiring new equipment, and paying for it monthly, rather than having a large cash outlay, looks extremely attractive to them.

Another topic of discussion centered around the opportunities available for Independent Lessors, as opposed to Banks and Bank Lessors. This was especially interesting to me, as DFI is an independent lessor. With the numerous regulatory issues confronting banks, independent lessors should be better positioned to react to the specific needs of their lessee customer and prospect base, while not having to deal with these regulatory issues, at the higher levels of the company. This is an exciting time for the leasing business.