A terminal rental adjustment clause (TRAC) is a special type of a tax-oriented lease. Companies take out this lease on motor vehicles they intend to use for their commercial operations. Under the lease conditions, they can adjust the payment terms, period, and residuals while it is active. They can even buy the vehicles from the financier for a specific price after the lease expires.
Sertant Capital – How does a TRAC work?
Sertant Capital is a trustworthy equipment finance company in America, offering customized solutions to businesses. Its flexible structured finance options appeal to both large companies and small entrepreneurs. Moreover, the professionals of the company assist their clients in increasing their revenue and business operations. The popular vendor programs of the company include:
- Progress payments,
- TRAC leases,
- First Amendment leases,
- Off-balance sheet financing,
- Tax leases,
- Capital leases, and
- Step-up/down payments.
The financial specialists of this equipment finance company state a TRAC lease works in the following ways:
- Companies approach a reliable financier willing to offer them this lease.
- The financier assesses the creditworthiness of the companies.
- The companies and financier then agree on the terms and conditions of the lease.
- The financier buys the vehicles the companies require from any reliable vendor of their choice.
- On purchasing the vehicles, the financier retains the relevant title documents.
- The financier then leases the vehicles to companies for a specific period.
- The companies make regular monthly lease payments to the financier for using the vehicles.
Factors companies need to consider
Companies need to consider the following factors before and at the time of signing a TRAC lease agreement:
- Determine the right vehicles they intend to use for their commercial purposes,
- Find a reliable financier who is willing to offer them this lease,
- Ensure that all the relevant documents like bank statements, incorporation certificate, and tax returns are ready,
- Carefully read the fine lines of the TRAC lease agreement, especially its terms and conditions, and
- Ensure the lease period, and monthly payment terms are flexible.
Advantages of TRAC leases
The advantages of signing a TRAC lease with a reliable financier for companies are as follows:
- They save money upfront by not purchasing commercial vehicles outright,
- Lease payments are cheaper to the rentals applicable in other commercial leases,
- They can minimize their income tax liability by claiming a deduction on the lease payments,
- They can spread their total sales tax liability over the lease period to reduce costs, and
- They have the option to buy the commercial vehicles from their financiers after the lease expires.
The financial experts of Sertant Capital sum up by saying a TRAC lease allows companies to use motor vehicles for their business operations without purchasing them. This eases the pressure of their cash flow by enabling them to save money upfront. They are even eligible to claim tax deductions on the monthly lease payments. Moreover, the companies can spread their sales tax liable over the lease period. This helps them to further reduce their operating costs and earn more profits. At the end of the lease period, they can choose to buy the financier’s vehicles without hassles.