Navigating the world of business financing can be challenging, especially if you’re dealing with bad credit. Below, we provide a clear comparison between leasing and loan options to help you make an informed decision. Each option has its own benefits and considerations, and understanding these differences is crucial in choosing the right path for your business needs. Take a look at the table below to see how leasing and loans differ and determine which option best suits your situation.
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
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