A Lease Purchase Agreement is essentially an installment sale contract. The
issuer (Lessee) is able to acquire and utilize equipment and pay for them over a specified time period. If structured properly, the interest portion of the lease payment is exempt from federal and state income
tax resulting in low tax-exempt interest rates to the borrower.
Why is Lease Purchase not considered debt?
A Lease Purchase Agreement is a yearly obligation renewable at the option of the municipality. The obligation is subject to the annual appropriation in a given year.
The lease purchase agreement, terms
of the transaction are fully disclosed in their annual audited financial statements.
Due to a non-appropriation clause in the contract, payment is considered an operation expense rather than debt.
Who is eligible to utilize tax-exempt leasing?
Basically any municipality or public subdivision that can issue tax- exempt securities may utilize tax-exempt leasing.
Why should Government Officials consider lease purchase?
Lease Purchase agreements should be used to compliment rather than replace traditional equipment bond financing. Many times lease purchase can be a more timely, efficient and cost effective means
of financing essential equipment and facility. In addition to the low cost of
issuance, uncomplicated finance documents save both administrative and legal expense.
For issuers expecting to do multiple transactions over a period of time, additional saving can be attained by use of
a Master Lease Purchase Agreement.
What type of equipment can be leased?
Virtually any type of essential equipment may qualify for a lease purchase. Terms
may be offered from two to ten years depending on the useful life of the asset.
Mobile Clinic Money Source, Inc.