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End of Term Options
In an effort to help EverGreen’s clients truly understand the products and services we offer, below we have defined more clearly, the different aspects of your end of term options. Use this information to help determine if a tax lease versus a capital lease is to your advantage.
Purchase Option:
This buyout is traditionally for an option to purchase the equipment at lease termination for 10%, renew the lease or return the equipment. It allows a customer to expense their payment especially when the option is given to purchase for 10%, FMV or Renew. Often times, this lease can qualify as a True Lease, giving the customer off-balance sheet capabilities. This is most often the option of choice.
Balloon Purchase:
A balloon purchase is traditionally an agreed upon 10% of the original equipment cost. This differs from the 10% Purchase Option because there is no return provision. In exchange for this guaranty, monthly payments are usually very low. In some cases, where the equipment is considered desirable collateral, a larger buyout may be available. This figure would be pre-determined between the customer and EverGreen prior to signing the lease agreement as well. This would make the lease payments that much more affordable.
Fair Market Value (FMV):
FMV is often the buyout option of choice for those customers looking to reap the true tax advantage of a lease. An FMV lease allows the customer to expense their lease payments. Historically, monthly payments are lower under this payment plan than they would be for $1.00 Buyouts. FMV leases may qualify as operating leases. This allows the lessee to benefit by the off-balance sheet capabilities reducing exposure to the financial statements.
$1.00 Buyout:
Exactly as described, the end of term buyout in this case, is $1.00. Many customers choose this option for convenience and to avoid having a financial obligation at termination.
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