Capital Lease-Purchase Program

Need financing for larger capital assets?

The Finance Office’s Capital Lease-Purchase Program provides a financing option for departments purchasing equipment or capital assets with an aggregate value exceeding $500,000.  Lease periods range from one to ten years with a fixed payment at a low interest rate negotiated with the University’s external lenders.

Only tangible, capital items are eligible for purchase through the program; intangible expenses—such as services—are not allowed. Some examples include medical equipment, research equipment, large machines, farm equipment, and vehicle pools.

Equipment may not be sold until the lease-purchase is repaid.

Benefits

• Low, fixed interest rate
• MSU owns the equipment
• Flexible repayment terms (monthly or quarterly)
• Unit decides repayment period (1-10 years, but cannot exceed asset life)
• Cost-effective alternative to vendor financing
• Can be taxable or tax-exempt

What is a Capital Lease-Purchase Program?

• It enables the University to enter into leases for different capital equipment purchased at different times with the best lender at the time of purchase
• Having multiple lenders introduces competitive bidding to the process
• Using major financial lenders allows for lower cost, tax-exempt lease purchase program

Restrictions

• No early repayment, per the lenders
• One KFS account will fund the lease
  • Departments can then split funding sources if desired
• Additional reporting requirements similar to MSU’s other external debt, which TFM will manage
• MSU's Board of Trustees approved the program with an aggregate limit of $20 million, so capacity could limit availability
• No purchases/acquisitions will be permitted after 12/31/2029 absent further authorization of the program by the Board
• Lease‐Purchase maturity cannot exceed 10 years after the purchase or acquisition
• Only Authorized Officers (CFO and Director of TFM) can incur debt and obligate the University

Overview of Approval and Implementation Process

1. Unit identifies the need to finance their capital equipment purchase
2. Unit works with Purchasing to determine the optimal financing approach
3. Unit completes a lease financing application including a repayment plan
4. Purchasing contacts Treasury & Financial Management (TFM) for lender bid rates
5. Purchasing works with TFM to identify the best bid and tax classification
6. Purchasing secures Unit approval of the lease proposal
7. Purchasing sends lease documents to TFM
8. TFM obtains initial CFO approval, reviews documents, determines tax status, determines reporting requirements, gets Legal approval
9. TFM obtains Authorized Officer signature and sends to the lender for funding
10. TFM arranges payment and transaction recording (including the liability)
11. TFM processes payments to the lender and collects repayment from the Unit