When Tax-Exempt Municipal Leases Make Sense

You might think that an outright purchase is the only way to acquire new equipment. Fortunately, there’s a better way to navigate these challenges and make your budget work for you — it’s called a tax-exempt municipal lease (TEML).

Key Takeaways

A tax-exempt municipal lease allows government and public entities to acquire the equipment they need now by making manageable payments over time, freeing up capital for other projects.
This heavy equipment financing method offers a practical approach to obtaining essential equipment without requiring large upfront expenditures, increasing your purchasing power significantly.
A TEML’s non-appropriation clause provides flexibility by allowing for lease termination if future payments can’t be met, without requiring voter approval or bond elections in most states.

What is a tax-exempt municipal lease?
A tax-exempt municipal lease (also known as a tax-exempt installment purchase contract) is a financing solution that allows a public entity, municipality or government agency to procure the equipment they need now. Instead of a single large payment up front, you can purchase equipment by making manageable payments over the useful life of the asset. These payments are often pulled from existing operating budgets, simplifying the budgeting process.

Entities who qualify under Internal Revenue Code 103 include states, cities, towns, counties, townships and special purpose authorities. If this is you, read on.

What are the benefits of a tax-exempt municipal lease?
A TEML can help you solve some of the biggest challenges you face when acquiring new heavy construction equipment:

Increase your purchasing power: The cost of waiting to purchase equipment outright can be significant, as year-over-year price increases often surpass interest rates. A TEML allows you to lock in today’s prices and pay over time, which can be far more cost-effective than waiting. This financing option can help stretch your budget further, supporting broader equipment acquisition plans.
Improve cash flow: Budgeting for finance payments is infinitely easier than trying to tackle the entire purchase amount. By financing your equipment, you free up capital for other projects and critical needs. With a TEML, you can typically acquire the equipment you need with up to 100% financing and no down payment requirements.
Enjoy a lot more flexibility: Payments are typically treated as operating expense, not true debt. TEMLs are highly flexible, offering payment options that align with your budget calendar, including monthly, quarterly, semi-annual and annual schedules. Some solutions even allow you to defer your first payment for up to 12 months for added flexibility.
Get the least expensive form of financing: A tax-exempt municipal lease is a highly cost-effective form of financing available to government entities, featuring low, tax-exempt interest rates. You assume immediate ownership from day one, which is another significant advantage.
Protect your budget with the non-appropriation clause: This allows the lease to be terminated if future payments can’t be met. It also means that TEML financing doesn’t require voter approval or bond elections in most states.

How can Volvo Financial Services customize a TEML for you?
When you finance your machines with VFS, you can look forward to low municipal lease rates and a number of flexible payment options to best suit your needs. A few examples include:

Balloon payments: Pay a lump sum at the end of your contract and make smaller payments throughout the term of the loan.
Extended terms: To help customers acquire the machines they need with a payment they can afford, we offer extended terms of up to 72 months.
Customized annual payments: You can arrange for your first annual payment to be due a full year from the contract date by customizing your terms for annual payments in arrears.

Heavy equipment financing through a tax-exempt municipal lease can be a powerful way to acquire the equipment your community needs. Be sure to visit our municipal equipment leasing page for complete details or if you’d like to get in touch with us.