Capital or Operating Leases

Capital lease- The total project cost (all material + labor) can be combined into a capital lease structure requiring monthly payments over a specified term length. The debt and corresponding assets are shown on the balance sheet similar to traditional loans.

Operating lease – Similar to capital lease except the monthly payments are treated as an expense and are therefore recorded on the income statement rather than balance sheets.  At the end of the lease term clients can take ownership of the equipment.

Lease benefits

• Cash preservation- Rather than a lump sum payment, cash is preserved by making monthly payments over a predetermined length of time.

• Increase sustainable projects- Lower ROI projects can be more financially attractive in a lease structure because the associated project savings are compared with a lower monthly cost.  If paid in full upfront, such a project might not be approved.

• Increase cash flow- When the monthly energy savings exceeds the lease cost, a positive cash flow is created.

• Operating lease- Lease payments can be tax deductible.  Avoids debt on balance sheets.