|
LEASING |
BANK FINANCING |
| Interest Rates |
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 Statement |
Not mandatory for transactions
up to $150,000, used for customers
wishing to submit financial,
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- UCC filling & processing
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 Cost |
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 |