You have lots of concerns when you're financing a major purchase. To make it a little easier, we've compiled a list of our most frequently asked questions. You may find the answers to some of yours here. If not, you can contact Interface or your local Re:Source provider for additional information. What is it? What do I need to start? What is the minimum lease amount? Does a lease only cover floorcovering? Can third party vendor products and services be included? Is there a lot of paperwork to complete? What happens once the lease application is sent in? How long does all this take? What exactly is a lease, and how is a lease different from a loan? How long does a lease run? What is an Operating Lease and when should I choose this option? What is a Capital Lease and when should I choose this option? What is a Master Lease Agreement? What is a trial lease? Who leases? What is an early buy out option? What are typical residuals for a floorcovering lease? What is it? The Interface Flexible Financing Program was created to make it more convenient for you to purchase the floorcovering and services you want and need within your budget and available cash flow. Your Interface solutions provider can now provide you with a complete lease financing proposal along with your floorcovering quote. You no longer have to worry about drawing on lines of credit or spending precious capital when you make a floorcovering decision. What do I need to start? Your Re:Source solutions provider will give you a complete lease proposal along with your quote. Your Re:Source provider has all the materials to prepare a lease application based on the quote. What is the minimum lease amount? The minimum size of a lease is $25,000. However, future add-ons can be as small as $10,000. For example, you have leased carpet for your main office for $125,000. Twelve months later you decide you want to carpet one more conference room for $18,000. This is handled as an add-on to the original master lease. You add the second installation to the first under our master lease agreement. With a master lease you fill out only one lease application. Additional purchases in the future are then "added on" as a schedule to the lease. A Master Lease is the smart way to gain flexibility, speed and efficiency. Does a lease only cover floorcovering? No, it can cover much more. The Interface Flexible Finance Program accommodates the full range of available services and products. As a rule of thumb, anything involving a one-time expense, such as floorcovering, furniture moving, cleaning products and installation can be included in a lease. Services involving ongoing payments or service are not normally included in a lease. However, you can include the cost of the first year of maintenance in a lease. Can third party vendor products and services be included? Yes. An Interface Flexible Financing lease can cover just about any product your Re:Source solutions provider offers. For example, a lease can include granite flooring, vinyl and the cost of disposing of the old floorcovering. Is there a lot of paperwork to complete? No. Just a few documents are necessary for you to apply for a lease: - A copy of the floorcovering proposal initialed by you, the customer. - A completed lease application. - A signed commitment letter. - A check for the commitment fee. - For all lease applications above $100,000 please include a copy of your company's past two year's financial statements. Your Re:Source solutions provider will provide you with the necessary forms and assistance. What happens once the lease application is sent in? Dodd Pacific and its affiliated company, T&W Financial, will perform a credit analysis. Upon approval, all necessary documents are sent to you. Upon receipt of the signed documents, your project can start. The steps to a completed lease agreement are as follows: - Your Re:Source solutions provider submits the floorcovering products quote to you with the lease proposal included. - You accept the proposal and return the application, commitment letter, commitment fee and solution provider's proposal to Dodd Pacific. - Upon credit approval, Dodd Pacific notifies the Re:Source solutions provider. Dodd Pacific then prepares all required documentation and forwards it to you. How long does all this take? The lease approval and funding process typically takes five to ten days from the time Dodd Pacific has received all the necessary information from you. What exactly is a lease, and how is a lease different from a loan? Technically, a lease is a rental agreement where ownership may transfer from the leasing company to you at the end of the contract. Practically speaking, it is a type of purchase financing. It is a contract in which one party buys equipment from a manufacturer and conveys the use of the equipment to another party for a specific period of time for a predetermined monthly payment. It has a few different requirements than a loan for all three parties involved (leasing company, Re:Source solutions provider and the customer) and, as you will see, is typically a more flexible form of financing. The key technical difference is who owns the equipment. With a loan, you own the equipment and depreciate its value for tax purposes. With leasing, the lease company (lessor) owns the equipment for tax depreciation purposes. There are many advantages to leasing when compared to other forms of financing. How long does a lease run? A typical lease for floorcoverings runs three, four or five years, although some can run several years. What is an Operating Lease and when should I choose this option? With this type of lease, the term is shorter than the expected useful life of the floorcovering and the residual (purchase option) is greater than or equal to 10% of the purchase price. From an accounting standpoint, an operating lease is the simplest and most attractive type of lease for a lessee for three key reasons: - Each rental payment is treated as a rental operating expense with the asset and any depreciation kept off the company balance sheet. - Since it's an operating expense, it does not necessarily require a capital budget approval. Each payment is fully deductible before tax calculations. As with any financial transaction, each company should independently determine its preferred lease structure and accounting treatment. What is a Capital Lease and when should I choose this option? This type of lease is essentially an installment loan with no down payment. The term of a capital lease can be longer, more nearly covering the useful life of the floorcovering. There is normally a $1 residual or buy out for this type of lease. Payments may be lower than with an operating lease because of the longer term, or higher because of the smaller residual. For non-taxable entities such as non-profit organizations, government agencies and municipalities, $1 residuals, or capital leases, may be preferred. Without tax considerations, there is no tax incentive for the residual. The only concern then becomes one of managing cash flow. The question is, do you want low payments with a final balloon payment (the residual), or do you want equal payments at a slightly higher rate throughout the term of the lease? Because financial services companies are not regulated the way commercial banks are, one of the benefits of leasing is that the rules of how a lease deal can be put together are much more flexible than for a bank loan. The leasing company can structure the lease and payments to fit your needs. On smaller transactions, leases tend to be more standardized. On large transactions, variations appear more frequently. A lease on a big-ticket acquisition may include several customized provisions and options that would not appear in a typical lease agreement. Therefore, flexibility is a function of the size of the lease. Floorcovering leases typically run 3, 4 or 5 years. (Up to 7 years in some instances. Contact your Re:Source solutions provider for details.) For floorcovering however, cancelable lease options and early buy out options can be used to change the lease terms. If so, the lease must have a term that is shorter than the real estate lease (usually by at least six months). As with any financial transaction, each company should independently determine its preferred lease structure and accounting treatment. What is a Master Lease Agreement? Companies that continually acquire equipment at one or more locations may use a Master Lease to avoid executing a new contract for every acquisition. A Master Lease is a contract where the lessee leases currently needed assets and is able to acquire other assets under the same basic terms and conditions without negotiating a new contract. A simple one-page schedule is all that is required. A Master Lease can be used for both an operating lease and a capital lease. What is a trial lease? If you have any uncertainty about leasing, a cancellation buy out can be included in the lease allowing a buy out after just 6 months. This provides the flexibility to try leasing before deciding. For additional flexibility for the lessee, an early buy out option is incorporated that occurs one year prior to the end of the term (i.e., buy out after 3 years for a 4-year lease, after 4 years for a 5-year lease). All you must do is notify us at that time of the early buy out option, and make the required final payment in order to discontinue the last year of payments. Who leases? Eight out of ten companies lease. Lessees (the customer) vary widely from small, one-person operations to Fortune 1000 corporations. The types of equipment being leased are just as diverse. Transactions range from a few thousand dollars (such as vehicles) to multi-million dollar co-generation facilities, telecommunication systems, medical equipment, office systems, computers, commercial airliners, newspaper presses, and more recently, flooring. In 1998, it was estimated that approximately $187.4 billion of equipment was leased. What is an early buy out option? The residual or purchase option is the amount due at the end of the lease for you to purchase the floorcovering from the leasing company as agreed to by the parties involved. It is expressed as a percentage of the original purchase price and is not a part of the lease payments. This is the same as the purchase option residual on an auto lease. What are typical residuals for a floorcovering lease? Under the Interface Flexible Finance Program, residuals of 10% are normal. Under technical accounting rules (specifically FASB 13), this type of residual should allow the floorcovering to not be included on the lessee's balance sheet.