All Posts Tagged: leasing structures
Agriculture is an equipment-intensive business with a unique set of cash flows, and leasing can be a useful strategy for many ag companies.
Leasing structures could be adjusted to allow for seasonal payments when cash flow is strong, provide a potential advance rate of up to 100% of equipment cost, capitalize on tax advantages*, or trade depreciation from the equipment for a lower payment and rate. Structures that we’ve found particularly helpful for agribusinesses are seasonal rents (which can be incorporated into many of the lease structures), capital leases, and TRAC leases. Here are some examples of how Bank of the West clients have benefited from these structures:
- Seasonal rents: For an almond grower in California’s Central Valley, cash flows presented a big challenge under a traditional lease. Like many other ag entities, this business had a relatively short window earning cash from selling its product and a much longer period laying out funds to produce the crop and prepare for market. To help accommodate cash flow needs, we structured the lease so the client could make full payments when the money was coming in and make reduced payments when cash flow was weaker.
- Capital leases: When a wine producer in Napa Valley decided to shift to solar energy to lower electrical costs long-term, the equipment was eligible for a 30% energy tax credit. A capital lease gave this client the option to lease the equipment on a capital lease basis while retaining the tax credit to offset future tax payments.
- TRAC leases: When a long-time client was looking to purchase a fleet of trucks, we were able to use a tax-oriented TRAC lease structure where the Bank became owner of the trucks and retained a residual position in the equipment. This allowed us to provide the client with lower payments, lower interest rates, and a fixed-price purchase option at the end of the lease. The structure functioned as a lease but offered the client the benefits of a loan.
In other cases, we have offered leasing structures that match the asset life of the equipment to the lease term. For example, if a client has a piece of equipment only for use over three to four years, we can match the lease term to that time frame so the lease is over when the business owners are through with the equipment.
Different lease structures may be advantageous depending on your unique circumstances, and a skilled banking partner will be able to help identify the one that is best for you.
* Consult your tax advisor for information on possible tax consequences or benefits.
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