Canyon State Bus Sales Finance Department

Loan

Loan is an alternative to paying for in cash and is an agreement between a financial institution and the customer.

Benefits

Flexible in financing structure (length of contract, skip payments, etc.)

Borrower retains ownership in vehicle

Maintain existing credit and working capital for the operating needs of your business

Competitive financing rates

100% financing — customer, if credit approved, may finance motor vehicle fees as well as any applicable sales tax

Customer may feel there are advantages in dealing directly with lender

Customer may prefer to keep financial information confidential

Simple process, easy for customer to understand

Considerations

Lender is lien holder on title

Debtor must carry collision and comprehensive insurance for full price of vehicle

Repayment Structuring

Payments are usually structured in arrears

Down payments (if any) are made payable directly to seller

End-of-Term Requirements

Upon satisfactory completion of loan, lien is released; and unencumbered ownership is retained by borrower

Leasing

Leasing has become a popular way to finance new vehicle and equipment purchases. Customers have become more familiar with leasing as a financing alternative, and many customers request a leasing proposal.

A Lease is an agreement to acquire equipment or vehicles by the Lessee (end user/customer). The Lessee pays a predetermined periodic payment for the use of the leased asset and may have the opportunity to purchase the asset at the end of the lease.

Listed below are four basic types of leases — Operating Lease, Lease Purchase, TRAC Lease, and Municipal Lease. Most leases will fall into one or more of these categories based upon the type of residual or purchase option and the accounting and/or tax treatment of the Lease.

Operating Lease

An Operating Lease is often referred to as a True Lease. In an Operating Lease structure, the Lessee will pay a fixed periodic payment and will have the option to purchase the asset at the end of the Lease for a pre-determined price of its fair market value. The Lessee may also have the opportunity to renew the Lease for an additional term at a payment agreed to between the Lessor and Lessee.

Benefits

Flexible in financing structure (length of contract, etc.)

Maintain existing credit and working capital for the operating needs of your business

Competitive rates

Typically 100% financing — customer, if credit approved, may finance motor vehicle fees as well as any applicable sales tax

Typically provides the lowest monthly payment

May be treated as “off balance sheet” financing by customer

Payments may be an expense for accounting and/or tax purposes

Customer trades depreciation for lower effective interest rate

For customers with Alternative Minimum Tax considerations, an operating lease may allow them to trade depreciation that they cannot use immediately for lower monthly payments

May provide seller with remarketing opportunities at the end of the term

Allows the seller the opportunity to control their equipment age and residual value

Considerations

Lessor typically is owner/purchaser on title

Lessee must carry vehicle liability insurance for a minimum of $1,000,000 and include Lessor as Additional Named Insured

Lessee must carry collision and comprehensive insurance for full price of vehicle and include Lessor as Additional Named Insured

Repayment Structuring

Payments are usually structured in advance

Down payments are typically not made on Operating Leases

End-of-Term Requirements

Residual must be fair market value or should at least approximate the fair market value of the equipment

Lessee may be given the opportunity to renew the Lease for a set term at an agreed-upon payment

Lease Purchase

The most common type of lease, a Lease Purchase, typically has some type of nominal purchase price at the end of the term. In most cases, the Lessee will not be able to expense the payments for accounting or tax purposes. The customer will typically capitalize the asset, show the corresponding liability, expense the interest component of the payments, and depreciate the equipment.

Benefits

Flexible in financing structure (length of contract, skip payments, etc.)

Maintain existing credit and working capital for the operating needs of your business

Competitive rates

Typically 100% financing — customer, if credit approved, may finance motor vehicle fees as well as any applicable sales tax

Considerations

Lessor typically is owner/purchaser on title

Lessee must carry collision and comprehensive insurance for full price of vehicle and include Lessor as Additional Named Insured

Lessee must carry vehicle liability insurance for a minimum of $1,000,000 and include Lessor as Additional Named Insured

Repayment Structuring

Payments are usually structured in advance

Down payments (if any) are made payable directly to seller

End-of-Term Requirements

Upon satisfactory completion of the lease, lien is released; and unencumbered ownership is retained by borrower

Lessee may purchase equipment for a nominal sum

Renewal typically is not available

Trac Lease

TRAC stands for Terminal Rental Adjustment Clause and indicates a leasing structure available only for vehicles and the equipment mounted on them. TRAC is a tax designation and should allow the Lessee to expense the payments for tax purposes. With a TRAC lease the Lessor must assume some portion of the risk at the end of the lease, typically the first 10% – 15% of the risk based on the value of the equipment at the end of the lease.

Benefits

Flexible in leasing structure (length of contract, skip payments, residual, etc.)

Maintain existing credit and working capital for the operating needs of your business

Competitive leasing rates

100% financing — customer, if credit approved, may lease motor vehicle fees as well as any applicable sales/use tax

Lease payments may be tax deductible

TRAC Lease programs normally require little, if any, advance payment

Allows for Dealer participation

Considerations

Lessor is owner on title

Residual is a minimum of 20% of the original vehicle cost

Lessee must carry collision and comprehensive insurance for full price of vehicle and include Lessor as Additional Named Insured

Lessee must carry vehicle liability insurance for a minimum $1,000,000 and include Lessor as Additional Named Insured

Repayment Structuring

Payments are usually structured in advance

End-of-Term Requirements

Lessee may purchase the equipment for the pre-determined residual amount or return the equipment to the Lessor

Lessee guarantees payment of residual in the event of a return of the equipment

Vehicle is sold for “fair market value.” If the sale price of the vehicle exceeds the residual due, the excess proceeds will be credited to Lessee. If sale price is less than residual due, the Lessee will pay the shortfall, including any selling costs