Equipment Leasing vs Bank Financing

	Equipment Leasing	Bank Financing
Interest Rate	Fixed rates / fixed payments	Usually an adjustable rate
Terms	Up to 5 years	Usually 2 - 3 years.
Down Payment	0 - 5% (1st and last payment)	Typically 10 - 30%
Financial Statement	Not mandatory for most transactions up to $50,000 and financials are not required annually after that.	Required on almost all transactions over $10,000 and banks usually require annual updates to maintain loan.
Sales Tax	Part of monthly payment	Must be paid in advance
Hidden Requirements	None. Application fee only on completed transactions.	Compensating balances, other bank charges, loan covenants.
Tax Benefits	Usually 100% deductible over the term of the lease (makes effective rate lower)	Depreciated over the IRS's useful life of the equipment. Principal is not deductible.
Effective Cost	Possibly lower than bank financing due to tax benefits, lower down payment, longer lease term, and no requirements for compensating balances.	Higher cost due to longer depreciation schedule, larger down payment, adjustable interest rate, and other hidden costs.
Opportunity Cost	Preserves bank lines and cash, for operating expenses such as salaries, advertising, etc.	Depletes bank lines, possibly preventing opportunities to expand your business.
Risk	Pledges only leased equipment.	May require assets, home or other assets as collateral.
Quick Response	Yes	No
Deferred Payments	Yes	No

* Please consult your accountant or professional tax advisor for the best solution for your business.

	Equipment Leasing	Bank Financing
Interest Rate	Fixed rates / fixed payments	Usually an adjustable rate
Terms	Up to 5 years	Usually 2 - 3 years.
Down Payment	0 - 5% (1st and last payment)	Typically 10 - 30%
Financial Statement	Not mandatory for most transactions up to $50,000 and financials are not required annually after that.	Required on almost all transactions over $10,000 and banks usually require annual updates to maintain loan.
Sales Tax	Part of monthly payment	Must be paid in advance
Hidden Requirements	None. Application fee only on completed transactions.	Compensating balances, other bank charges, loan covenants.
Tax Benefits	Usually 100% deductible over the term of the lease (makes effective rate lower)	Depreciated over the IRS's useful life of the equipment. Principal is not deductible.
Effective Cost	Possibly lower than bank financing due to tax benefits, lower down payment, longer lease term, and no requirements for compensating balances.	Higher cost due to longer depreciation schedule, larger down payment, adjustable interest rate, and other hidden costs.
Opportunity Cost	Preserves bank lines and cash, for operating expenses such as salaries, advertising, etc.	Depletes bank lines, possibly preventing opportunities to expand your business.
Risk	Pledges only leased equipment.	May require assets, home or other assets as collateral.
Quick Response	Yes	No
Deferred Payments	Yes	No

* Please consult your accountant or professional tax advisor for the best solution for your business.