Frequently Asked Questions
Are the payments quoted final?
Can challenged credits still get approved?
Difference between a lease and a loan?
Lease: A lease finances 100% of the equipment value and only requires the end user to make a few advance payments at the start of the lease (typically less than 5% and apply to payment terms).
Loan: A loan requires the end user to invest a significant down payment on the equipment (20-50%) in addition to paying larger setup and origination fees (2-5%).
LIENS ON BUSINESS
Lease: Leases traditionally only require the filing of a UCC-1 lien on the asset being financed. This simple lien affords your company the freedom to grow and borrow without any restrictions on other company assets.
Loan: A loan usually requires the borrower to pledge additional assets for collateral through the use of Blanket Liens. Blanket liens can inhibit a company’s ability to grow by restricting access to capital when it is needed most.
DEPRECIATION & TAX BENEFITS
Lease: When structured properly, leasing affords end-users the ability to claim 100% of their lease payments as a tax deduction. The equipment write-off is accelerated because it is tied to the lease term, which is typically much shorter than IRS depreciation schedules, resulting in larger tax deductions each year.
Loan: End users may only claim a partial tax deduction for their loan payment in the form of interest and depreciation. Also note that these deductions must be spread out over the longer IRS depreciation schedules.
BALANCE SHEET & ACCOUNTING
Lease: When structured properly, leased assets are listed only as a monthly expense on your Income Statement. Therefore, leased assets do not appear on the balance sheet as liabilities, which can improve financial ratios.
Loan: Financial Accounting Standards require owned equipment to appear as an asset with a corresponding liability on your balance sheet. Visible liabilities can burden your balance sheet and inhibit your ability to borrow, when needed.
Lease: Leases commonly operate under “application-only” credit guidelines which translate to faster credit decisions with less financial information provided by the end user. Paramount’s credit decisions are typically in place within 24 hours or receiving a credit application. Leasing companies take into consideration the personal credit scores of the business owner(s) and thus have greater flexibility in our lending programs that allow us to approve a very wide range of credits.
Loan: Lengthy bank procedures commonly stretch the credit review process over several weeks, thus inhibiting the end user’s ability to source equipment at the time of need. Most banks require a minimum of 2 years financial history and thus rarely lend to commercial startups or younger companies.
TIME VALUE OF MONEY / RESTRICTIVE COVENANTS
Lease: Cash flow occurs evenly over the scheduled term or later in the lease thus making dollars “cheaper” based on the Time Value of Money.
Loan: A larger portion of the financial obligation is paid in today’s more expensive dollars (security/down payments). Also note that a bank holds minimum balances in your checking account which means you are mostly borrowing against your own money. Ex: If you borrow $30k from bank at 8% for 60 months, but keep $10k in the bank on average, the effective rate to the borrower is really 26%.
Lease: Because of accelerated and certain tax benefits, lease terms are fixed in length and thus should not be treated like short-term loans. For clients that prefer a lease but wish to keep early buyout options available, we recommend requesting a shorter lease term that mirrors your targeted end date.
Loan: Loans do afford the end-user the ability to close out early, but keep in mind that open bank lines of credit (even if not being used) will not remove restrictive blanket liens.
Are there any term restrictions?
Can a customer payoff early?
What end of term options are available?
We structure our leases according to the needs of our customers. If you are not sure what you need, consult your accountant about the lease structure that may be best for your company. The most common end of term purchase options are as follows:
FMV (Fair Market Value) = The FMV lease affords the lowest monthly payments (and traditionally the best tax advantages) to the end user over the term. After the scheduled lease term, the end user has the option to buy for FMV, return the equipment or continue leasing for another period of time. Depending on approval and your particular needs, this type of purchase option may be set at a specific percentage of the original equipment cost.
$101 / $1 Buyout = This is most common with clients that want to treat their lease more like a loan. Overall out of pocket expense is similar to that of an FMV lease, but traditional tax benefits typically do not apply to this type of purchase transaction. Although the equipment is still being leased, the client will have the option to buy the equipment for $101 at the end of term. Many states do not recognize amounts less than $101 as significant purchase options, there for $1 buyouts may not be available.
What is the interest rate?
Does Paramount approve “younger or start-up” companies?
What other products and services does Paramount provide?
Paramount provides a variety of financial products ranging from $5K to $5M. Ask about the following products as they may relate to your needs:
- Capital Leases
- Operating Leases
- TRAC Leases
- EFA – Equipment Financing Agreements
- Working Capital
- Municipal Leases
Are bank statements, financials or tax returns required?
Why work with a Direct Lender like Paramount?
Advance Deposits 101 – What you need to know!
Most leases only require the end user to make a few advance payments at the start of a lease. Any required advance payments should apply to your overall contract term. Paramount clearly lists documentation, processing & origination fees on the first page of our agreements. These common fees cover services associated with originating, producing, filing and funding lease transactions. Occasionally, transactions may require other services, such as location or equipment inspections, which would be billed immediately after funding your transaction. Beware of lenders that request a security deposit too early in the process. Make sure that your lender will provide you a full unconditional refund if the deal does not get approved or funded under the terms you originally agreed to! In addition, always investigate the Better Business Bureau report for any lender before signing an agreement or sending a deposit check! (www.bbb.org)