Equipment Leasing vs . Equipment Loans, which is better?

Application Process

Lease
A lease application can be as little as one page for as much as $150, 000 worth of equipment. Approval can occur within 24 hours.

Loan
Lenders tend to require multiple financial documents before reviewing loan
applications for approval, such as tax returns and financial statements. This
process can take several days

Costs Covered

Lease
Leasing covers the entire cost, including the equipment, tax, shipping and handling, installation fees or any other expense associated with the equipment.

Loan
Loans usually finance a portion of the equipment cost, neglecting excess costs in acquiring the equipment such as equipment tax, shipping and handling and any installation fees.

Types of Equipment

Lease
A lease will generally approve any type of equipment needed, regardless of its condition or whether it is new or used.

Loan
Lenders may be skeptical about financing equipment they are unfamiliar with, or equipment with low collateral or potential diminishing value.

Down Payments

Lease
There is no down payment. The first payment usually entails the first and last months’ payments

Loan
A down payment is required, separate from the amount covered in the loan. The first payment usually entails a down payment and the first month’ s payment.

Interest Rates

Lease
The interest rate is fixed. Each payment is inflexible, being determined at the beginning of the lease. This simplifies budgeting, since lease payments are not susceptible to change.

Loan
The interest rate fluctuates. Payments may grow more or less expensive as the market changes, making it difficult to determine how much capital to dedicate to loan payments for a given fiscal year.

Collateral Requirements

Lease
Leasing requires no collateral assets aside from the equipment being leased. A lessor is only legally concerned with that aspect of the business being financed.

Loan
Banks often claim other equipment or real estate of the company as collateral to secure the loan. This can prove costly if the borrower defaults on a loan, as more than just the financed equipment is at stake.

Equipment Ownership

Lease
Leased assets do not appear on balance sheets, since the equipment is owned by the leasing company. This can benefit a company’s financial ratio.

Loan
The equipment is owned by the borrower and appears as an asset on the balance sheets, which incorporates a degree of liability.

Additional Covenants

Lease
No extra agreements are made between the lessor and lessee. If payments are made on time, the lessor cannot demand immediate payment of outstanding debt or reclaim the equipment.

Loan
Extra covenants might be a part of a loan agreement. If any extra agreements are broken, a bank might demand full payment of the remaining balance on the loan, as well as impede use of the equipment being paid off. Future borrowing may also be restricted.

Tax Benefits

Lease
A lease usually allows for tax deduction of entire payments made toward the lease. If the equipment keeps its relative value during the lease and is purchased at the end, deductions can be made on depreciation thereafter.

Loan
A loan usually allows for tax deduction on a portion of the loan as interest. Tax deductions can also be made on the amount of depreciation attached to the equipment. A borrower cannot deduct entire payments made on a loan.

End of Borrowing Term

Lease
At the end of the lease term, the lessee may choose to transfer the burden of equipment depreciation to the lessor or to keep the equipment. Purchase options for as low as $1 are offered.

Loan
At the end of a loan, the borrower owns the equipment and bears the risk of equipment depreciation. If the equipment becomes obsolete during the duration of the loan, it is still up to the borrower to make payments and dispose of the useless equipment.