Here is an analysis of how leasing compares with
other payment methods in several key areas:
|
Question |
Lease |
Loan/Credit
Line |
Cash |
|
What will your total costs be for
the product and how much will you have to pay at date of
purchase? |
Low up front cost - either one or two payments.
Manageable monthly lease payment. Upgrade option on operating
leases. Full ownership on capital leases. |
Typically at least a 20% down payment. Bank usually only
finances 80% of total cost. Rates range from 7 - 18%. Full
ownership at end of loan. |
Total due. Paying for product with after
tax dollars. |
|
What are your payment structure options? |
1 - 5 yr lease terms available. Buyout options:
$1 or 10%. Ability to structure as operating or capital
lease. |
Banks may restrict to shorter terms. |
Total due. Paying for product with after
tax dollars. |
|
How will it affect your cash flow
& credit availability? |
Low up front cost - keeps working capital
for business. If guaranteed - lease will show up on credit
report. |
Large down payment often due. Listed as
revolving debt on credit report. |
Cash flow may be depleted by large up front
payment |
|
What are the tax advantages? |
100% write-off when structured as operating
lease |
Can only write off interest portion of loan.
Principal is depreciated. |
Paying with after tax dollars. |
|
What about the concern of obsolescence? |
Upgrades and add-ons can be built into lease
agreement to avoid obsolescence. |
You own the equipment at the end of payment
regardless if it has become outdated. |
You own the equipment at the end of payment
regardless if it has become outdated. |
|
Overall comparison |
Low up front cost, retain capital strength,
upgrade options, quick application process (no financials
needed), asset management |
Company should keep their credit line available
for emergencies - not equipment purchases. Difficult to
set credit line up and once it is gone - its gone. |
Not a good option - want to keep as much
money for working capital as possible |
