| |
LEASING |
BANK FINANCING |
| Interest Rate |
Fixed Rate / Fixed Payments |
Usually an adjustable rate |
| Term |
Up to 5 years on all
equipment over $2,500 |
Usually 2-3 yr. |
| Down Payment |
100% Financing |
Typically 20% - 30% of
total cost |
| Financial
Statements |
Not mandatory for
transactions up to $75,000 (based on credit & time in business), and financial are not required
annually after approval |
Required on almost all
transactions over $10,000, and bank usually requires
annual updates to maintain loan |
| Financial
Reporting |
Not required to be
reflected on balance sheet as debt |
Carried on balance sheet
as debt |
| Sales Tax |
Financed with monthly
payment |
Must be paid in advance |
| Hidden
Requirements |
None- Application fee only
at lease execution, no lease termination costs |
Compensating balances,
other bank charges, loan covenants |
| Tax Benefits |
Usually 100% deductible
over the term of the lease |
Depreciated over the IRS's
useful life of the equipment |
| Effective Costs |
Lower than bank financing
due to tax benefits, lower down payment, longer lease
term and no requirement for compensating balances |
Higher cost due to longer
depreciation schedule, larger down payment, adjustable
interest rate, and other hidden charges |
| Opportunity Cost |
Frees bank lines and cash
allowing you to invest further in your business |
Ties up bank lines
possibly preventing opportunities to expand your business |
