Fundamentals & Types of Financing

Short Term Financing
Short-term financing programs are designed to be repaid within a one-year period and are designed to meet the various needs of our customers. The five types of short term financing offered by Cisco Systems Capital are:

• Purchase Order Financing - resellers can identify unusually large or unique purchase orders they receive from their customers and finance these specific transactions, thereby reserving their company's credit line for more typical transactions
• Extended Terms Financing - permits resellers or end users to extend standard 30-day payment terms on their credit line for specific transactions to better manage their company's cash flow.
• E-Rate Financing - provides financing for resellers who have an E-Rate financed contract with an educational institution. This assists in matching the E-Rate grant payment from the government with the purchase payment to the vendor.
• Distribution Financing - available for qualified resellers and distributors to extend interest-free 45- and 60-day payments terms to better manage cash flow and company growth.
• Accounts Receivable Financing - authorized resellers can establish a secured, revolving line of credit with advance rates up to 85% to assist in managing cash flow and company growth.

Long Term Financing
Long term financing programs are designed to be repaid over a period of one year or more. The two primary types of long term financing offered by Cisco Systems Capital are project financing and lease financing.

• Project Financing - structured so that an entire networking project is financed under a single financing agreement.
• Lease Financing - structured so that single or multiple purchases are financed under one master lease agreement.
• Different Lease Types
  • Capital Lease - also called a finance lease, a capital lease is similar to a loan, with lessees building equity in equipment as they make each payment. Because of this, lessees account for the asset as a conditional sale and must depreciate the equipment as a capital asset. Simultaneously, the present value of the firm lease payments appear as a liability on the lessee's balance sheet.
  • Conditional Sales Contract - transaction where equity accumulates and the lessee capitalizes" the asset. The lessee takes depreciation and expenses the interest portion of their payment, and title is held by the lessee.
  • Operating Lease - For financial reporting purposes, FASB defines an operating lease as one that does not meet the criteria of a capital lease. This means that the asset and corresponding liability are viewed as "off balance sheet" and the entire monthly payment is expensed or treated as a budget item. As viewed by the lessor, an operating lease describes a short-term lease (compared to the asset's expected useful life) in which the total of payments received by the lessor do not cover the cost that the lessor paid to acquire the asset.
  • True Lease - a term used when addressing the tax implications of a lease. In simple terms a lease is considered a true lease if at the end of the lease term the lessee has the option to purchase the equipment at what is defined as Fair Market Value. Conversely, if the lease agreement contains a bargain purchase option, it would be treated as an installment sale.