Difference between an Equipment Lease and an Equipment Loan

Most business owners get confused when it comes to financing equipment for their company. It gets hard to decide whether to loan the equipment or lease it. So in order to help you out a bit to solve this issue and clear your head, here are a few points that show the difference between a lease and a loan. These will help you a lot to make the right decision.

Equipment Loan 
Equipment Lease

If you take a loan for the equipment, then get ready to submit a down payment for it, because you will have to invest that much while the loan takes care of the rest of expenses.

In leasing you don’t have to worry about submitting any kind of down payment, which is very convenient for start-ups.
In case of a loan, the borrower has to give a guarantee by giving a security deposit to the lender. When all the obligations of the loan are fulfilled, only then the borrower will have full ownership of the equipment. Once you lease the equipment you don’t have to give any guarantee or security deposit, as the equipment itself is considered collateral.
When it comes to tax deduction, payments are only partially tax deductible. With leasing, the payments are fully tax deductible, which is the biggest advantage that you can have over loaning. The annual deduction amount also remains the same so you can set a budget easily.
When you take a loan it shows up on your balance sheet so it may have a negative impact on your financial statements.
Leasing has no negative impact on the balance sheet as all the payments are considered to be business expenses instead of a debt.
Taking a loan affects your capital as you have to fulfil the financial obligations that were set in the loan agreement. Leasing equipment is typically less expensive than loaning.
With loaning, a lot of documentation and agreements are needed to set the terms and it takes weeks to get everything done. Leasing equipment is easier as compared to loaning because the whole process is much simpler and takes only a few days.

In case the equipment goes obsolete, you will have to bear all the risk.
In case of leasing, you don’t need to worry about obsolescence since you can upgrade the equipment when the lease is up.
You have to adhere to the various covenants which remove the flexibility of making independent decisions.
In leasing you are free to make all kinds of decisions because you are not restricted by any kind of covenants.

The above mentioned points make it clear that while financing your equipment always go for the lease because it provides you freedom and flexibility to carry out your business with ease, which is not available if you take a loan from a bank. Besides that, small businesses have a better chance of leasing equipment than loaning because most banks don’t provide loans to such businesses.

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About Us

NHBS Inc has been helping small business obtain secured forms of financing since 1999. We offer specialized equipment leasing programs for start up businesses and businesses facing credit challenges.
  • Equipment Leasing Programs
    We provided equipment leasing in the USA only. Minimum lease amount of $5,000. We do most types of equipment and provide programs to equipment sales people to help them provide financing for their customers [more]
  • New Business Equipment Leasing (Start up Businesses)
    This program requires no time in business. Must types of equipment funded. No vending routes or ATM routes. Minimum lease amount is $5,000. Homebased business o.k. [more]
  • Bad Credit Equipment Leasing
    This program is for people with PAST credit problems. If you are currently going thru problems or your bankruptcy is less than 3 years old. This program is not for you. Must have started to re-establish credit. Minumum lease amount of $5,000. [more]
  • Secured Business Loans
    These programs are secured by some sort of collateral. It can be already owned equipment, a companies accounts recievables, or even their monthly merchant account. Most of these DO NOT require the business owner to have good credit. Since the loan is secured, bad credit can be approved. [more]