Solar Discovery

Q: What’s the difference between a loan and a lease?
A: Generally, the equipment being financed is the only collateral on a lease. That may notbe the case with a loan, where the lender, say the customer’s bank, may put a lien onsome or many of the borrower’s other assets. Sometimes a bank will even put a “blanket” lien on all the customer’s assets—cash, accounts receivable, inventory, other equipment, etc. Also, a lease will have fixed payments over a fixed term of so many months or years. A loan can be either fixed-term or could be “revolving” like a line of credit, and may have “floating” rates or adjustable payments.

Q: What’s the difference between a Non-Tax/Capital Lease and a Tax/True Lease? A: The difference lies in the ownership of the system, and the tax and accounting treatments that result.

In the Non-Tax/Capital Lease, the customer (lessee) owns the equipment and uses the tax credit, accelerated depreciation and write off of interest paid.

In the Tax/True Lease, the Lender (lessor) owns the equipment and receives the tax benefits. In this case, the customer will indirectly get those benefits through lease payments that are much lower than those in a loan or Non-Tax Lease.

Q: Which lease works best for most customers?
A: Overwhelming, the Tax/True Lease works best for most “for-profit” enterprises because many businesses, even though profitable, can’t make full use of the tax benefits! With the Tax/True Lease, they can still get the benefit—indirectly, through lower payments. Also, the Tax/True Lease can be used for those customers who can use the tax benefits, but may prefer the True Lease because it’s simpler to predict resulting cash flow and savings.