Capital-Intensive Businesses Use Off-Balance Sheet Leases to Manage Bank Covenants
Client Situation: As a capital intensive business, this long-haul trucking company was determined to grow with their clients—the use of off balance sheet leases for additional asset acquisition while maintaining bank covenants.
EFFI Provided: In order to meet goals of their client, EFFI provided this trucking company long-term lease financing which did not affect the leverage ratios.
When the primary banking relationship requires bank covenants, adding additional debt to the balance sheet may affect leverage ratios and impact compliance.
84-month TRAC leases and Split-TRAC leases for revenue generating equipment was the key to maintain low monthly payments and compliance with bank covenants.
A true lease, with a Fair Market Value purchase option (FMV), allows the company to achieve rental status for the asset acquisition with most auditors and bankers.