Equipment Leasing vs Bank Financing

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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 Yes
Deferred Payments No No

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