This is a lease that satisfies the Financial Accounting Standards Board (FASB) requirements for an off-balance sheet transaction. Operating leases also are sometimes referred to as "true leases." FASB Rules require the net present value of the rental payment stream does not exceed 90% of the capitalized cost of the equipment at the lessee’s internal rate of return or incremental borrowing rate.

Equity held by the lessor is required for this type of transaction. Not all leasing companies provide Operating Lease structures because of this.

Why an Operating Lease?
True lease payments can be 100% tax-deductible – no depreciation or interest expense calculations are necessary. Leasing can provide favorable tax treatment and tax benefits. The IRS considers an operating lease to be a tax-deductible overhead expense, rather than a purchase. As such, lease payments are totally an income expense item. Companies may find this favorable tax treatment to reduce taxable income and may also move the business to an overall lower tax bracket. Each company is unique and should consult its own tax, financial and accounting advisor to determine the specific tax and accounting treatment of each individual leases, and whether it meets the company's needs.

Leasing equipment protects a company’s ability to upgrade to current technology through equipment-return provisions in a lease. The most frequent benefit mentioned by lessees is flexibility. By leasing equipment on shorter term operating leases businesses are protected against changes in their business and against obsolete technology. IT managers, for example, know whatever equipment is acquired today will be outdated for their needs in a very short period of time.

Leases preserve current operating lines of credit - reduced down payment necessary for acquiring equipment. Leases can save a company from using their current credit line for either the down payment on an equipment purchase or the actual purchase of the equipment. Normal start up costs for leases include only the first month’s rent and any doc fees. This amount is significantly less of an investment than the 20% down for a standard loan.

Operating leases reduce outstanding debt recorded on the balance sheet – better debt to equity ratio. Balance Sheet management often becomes the primary motivation to lease. Operating leases are not considered long-term debt or liability, so better debt to equity ratios are reflected.

No blanket liens: Leasing is asset specific therefore no blanket liens are filed on your property. A UCC will be filed only on the asset you are leasing.