An Equipment Finance Agreement (EFA) is a fixed-term
loan obligation with equal monthly payments, where the
borrower is the owner of the equipment and the lender
has a security interest in the equipment.
The loan can be paid off any time with no prepayment penalty.
This product is used when the customer knows they will
be keeping the equipment longer than the actual term
of the agreement. Like the One-Dollar Purchase Option
Lease, this agreement may qualify for depreciation benefits.
The borrower deducts as a business expense both the depreciation on the equipment and the interest portion of the monthly payment.
A Lessor may use an EFA, and act as the lender, when the borrower has already taken delivery of, and has paid for, the equipment, when the borrower desires to pay off an existing term loan, normally called a refinancing, when the seller of the equipment is someone other than an equipment vendor, and for computer software where the borrower has to license the use of the software from the software vendor.