LEASING VS FINANCING
80% of all businesses LEASE their capital equipment!
Buy that which APPRECIATES & Lease that which DEPRECIATES
This site has been developed using information from several different companies. It will help you understand the advantages of leasing your heavy equipment and trucks rather than paying cash or financing with a conventional loan. This will enable you to make an informed decision about the best way to acquire your needed equipment. Call our toll-free number if you would like to talk to one of our professional staff.
Company A
Probably the most important feature is that a lease conserves your working capital. You can acquire your equipment without a large down payment This enables you to keep working capital available for other uses.
The lease payments can be arranged to match seasonal cash flow. Payments may be made, monthly, quarterly, semi annually or annually
In most cases the payments on a lease can be 100% tax deductible.
Equipment may be new or used and the customer can chose the equipment, the dealer, and negotiate the price.
Rates for a lease are fixed.
Company B
A LEASE is a rental agreement. A LOAN is an agreement to borrow money.
Loan rates are usually based on Prime Rate or other indexes. This is a good feature during times of falling interest rates but not desirable when rates are rising.
Banks will usually finance 60% - 80% of the equipment cost. With a lease you are able to finance the complete purchase including soft costs and sales tax.
Banks will charge application fees, origination fees, commitment fees, schedule fees, funding fees, any expenses associated with approving and executing the loan. With a lease, 99% of the time with leases up to $75,000.00 there is only a Documentation fee which is minimal, usually from $95.00 to $250.00, depending on the amount of the transaction.
Banks tend to be less flexible than a leasing company. With a lease most of the time you can choose the terms, purchase option and the down payment.
Some banks will not finance equipment they are not familiar with or feel that it has limited collateral value.
For a loan most banks will do nothing until they receive a full financial statement. Most leases under $150,000.00 do not need financial statements, only a completed application. Over half of the lease applications are usually approved the same or next day.
Banks usually secure their loan by requiring additional collateral in the form of real estate, equipment, inventory or your house. It is common practice for a bank to file a blanket lien against all assets of your company.
For your comparison:
| |
LOAN |
LEASE |
| Cash Outlay |
approx 25% |
100% financing |
| Credit Line |
decreases credit line |
no money borrowed |
| Operating Capital |
down payment required |
low front-end cost |
| Payments |
vary with interest |
fixed with tax benefits |
| Easy upgrade |
re-application usually required |
YES |
| Flexible payment schedule |
NO |
YES |
To summarize the benefits of leasing:
Leasing usually provides 100% financing with minimum up-front expense and down payments required.
It is a fixed expense, no concern about rising interest rates.
It preserves you existing line of credit which can then be used as working capital.
There are tax advantages, sometimes 100% write-off of the monthly lease payment.
You are protected against your equipment becoming obsolete, you can easily upgrade to better equipment when needed.
There are flexible repayment terms which allow you to match your payments to seasonal cash flow or other requirements.
Usually funding is prompt, no delays, no burdensome financial statements to submit.
Company C
Consider these benefits of LEASING when considering the purchase of equipment for your business.
The #1 reason a business fails is due to lack of cash flow. LEASING allows you to reserve your cash for other uses.
There is not the requirement to submit detailed financial statements.
There is not a lengthy credit approval time.
There is not a major cash outlay. Your lines of credit are conserved!
There are substantial tax advantages.
The payments are fixed, unaffected by rising interest rates.
If you are just starting in business leasing may be your best option since banks will not consider financing a business with less than a two year history.
There are flexible payment options.
You can conserve your borrowing availability and keep your company.s cash flow liquid.
You have the option of leasing new or used equipment, banks tend to only finance new.
Company D
A LEASE is an agreement in which the leasing company (who will actually own the equipment) gives the customer the right to use this equipment for a specified length of time and a specified payment. At the end of the lease, depending on the terms of the lease, the customer may either purchase, return, or continue to lease the equipment.
There are limitless possibilities, you can lease anything for your business including equipment, hardware, software, and costs such as shipping, installation and consultation.
A Lease does not tie up working capital that could be used for other purposes.
For transactions under $150,000.00 generally there is no need for financial statements. With a lease there is always a fixed rate, approval time is usually within one to two days, minimal amount of up-front money needed compared to 10% - 20% or more for conventional financing.
Lease payments can be 100% tax deductible when shown as an operating expense.
There are different kinds of leases which affords flexibility to meet your business needs.
STEP-UP Lease: start out with low payments that increase over time. Allows you to use the equipment to generate income.
SKIP Lease: payments are restricted to certain months of the year so you can plan payments if you have seasonal flow of income.
DEFERRED Payment Lease: Allows there to be a significant period of time before the first payment is due.
MASTER Lease: offers convenience when you want to add more equipment to your existing lease.
Company E
| Lease |
Loan |
| Frees up Capital |
Reduces available credit lines |
| Hedge against inflation |
Extensive Documentation |
| 100% Financing |
Extensive Monthly Reporting |
| Simple application |
Often requires additional collateral |
| Potential tax advantage |
Often requires down payment |
| Easy Add-ins & Trade Ups |
Not Flexible |
| Preserves Credit Lines |
Negative impact on balance sheet |
| Fixed payments |
Bank Loans can be cancelled by Lender anytime |
| Longer terms |
|
| No Down Payments |
|
| Ad Additional Collateral |
|
| No Fees |
|
Below, is a list of Commercial Trucks and other heavy equipment in our hugh stock.
