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Interest Rates
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Floating rates can go sky-high
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Fixed rate with fixed payments
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Credit effects
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Reports all credit issuance to the major credit bureaus. Effects future borrowing power. |
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Reports only of the borrower does not pay as agreed. Minimizes effects. |
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Terms
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Usually 2-3 years; loan must be reduced to zero balance annually |
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Up to 10 years |
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Opportunity Costs
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Ties up bank lines, thus prohibiting future investment |
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Frees bank lines and cash for future investments |
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| Requirements |
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Financial statements required on almost all transactions over $10k; often requires annual updates to maintain loan |
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Financial statements not required for most transactions up to $100k (or more for some health care providers) |
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| Down Payment |
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Typically 20% to 30% required |
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100% financing available |
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| Hidden Costs |
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Compensating balances, other bank charges, loan covenants |
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None. No lease termination fee. |
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| Effective Cost |
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High due to longer depreciation schedule, larger down payment, adjustable interest rate, and other $$$ |
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Low due to tax benefits, no down payment, longer lease term, and no ompensating balance requirement |
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| Soft Cost Coverage |
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Cannot finance shipping, tech support, maintenance, etc. |
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All soft costs can be financed |
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| Sales Tax |
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Must be paid in advance |
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Financed within monthly payment |
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| Tax Benefits |
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Depreciated over the IRS’ useful life of the equipment |
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Usually 100% deductible over the lease term |
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| Expensing |
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Can only expense depreciation and interest |
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Can expense 100% of the payment |
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| Financial Reporting |
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Carried on balance sheet as debt |
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Not required to be reflected on balance sheet as debt |
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Banks definitely have their place. If you have plenty of cash, if you want a good rate on a home loan, or if you already have an extensive line of credit, the bank may be your first choice. But please keep in mind: banks do have their limitations! LeaseSource, Inc. offers equipment leasing, software leasing, computer leasing, government leases and business loans at competitive rates.
