Food processing companies should consider utilizing farm credit leasing options if they’re considering financing a solar installation. Despite a popular misconception, companies don’t need to have growing facilities to utilize farming leases for solar installations . They just need to be purchasing product from growers to qualify for solar power leases. Below is a quick overview of the two types of leases food processors can take advantage of depending on their financial situation and goals: operating leases and capital leases.
Operating Solar Power Leases
If your company does not have the tax appetite for the 30% Investment Tax Credit and the accelerated deprecation that solar provides, an operating lease would make the most sense. In an operating lease, the leasing company retains all the tax incentives while your company would benefit from a lower monthly payment.
In an operating lease, the lessor (or owner) transfers only the right to use the property to the lessee. At the end of the lease period, the lessee returns the property to the lessor. Since the lessee does not assume the risk of ownership, the lease expense is treated as an operating expense in the income statement and the lease does not affect the balance sheet.
– Term: 7-10 years
– Payments: fixed throughout term.
– Rate: lower than traditional financing
– Operations & Maintenance: Lessor is responsible
No cash outlay upfront for the solar energy system. Most systems are cash flow positive from day 1 allowing you to save money on your utility bills right away.
What happens at the end of the solar power lease?
Borrowers have the option to extend the lease term or purchase equipment at the end of the term for around 20% of the purchase price.
We recently completed roof-top installations at Coast Citrus Distributors’ San Diego and Los Angeles facilities using an operating lease. The San Diego system is expected to save Coast Citrus 30% in energy costs annually.
Capital Solar Power Leases
In a capital lease, the lessee assumes some of the risks of ownership and enjoys some of the benefits. This is a lease If your company would like to retain the tax advantages associated with a solar project, you can opt for a capital lease, which is similar to traditional financing. For tax purposes, the lessee deducts the interest portion of the capital lease payment as an expense. The lessee recognizes the lease as an asset and the lease payment as a liability on the balance sheet.
The lessee is able to keep the 30% federal tax credit and depreciation. Just like an operating lease, there isn’t a capital outlay upfront or throughout the lease term except for lease payments and your company can use the savings from the tax credit and depreciation to fund the lease payments.
What happens at the end of the capital lease?
Borrowers have the option to purchase equipment at the end of the term for around 20% of the purchase price.