| 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.