| | The Burdens of a Bank Loan | The Ease of Leasing |
| Interest Rates |
Floating rates can go sky-high |
Fixed rate with fixed payments |
| Credit effects |
Reports all credit issuance to the major credit bureaus.
Effects future borrowing power.
|
Reports only if the borrower does not pay as agreed.
Minimizes effects.
|
| Terms |
Usually 2-3 years; loans must be reduced to zero balance annually. |
Up to 5 years |
| Opportunity Costs |
Ties up bank lines, thus prohibiting future investment |
Frees bank lines and cash for future investments |
| Requirements |
Financial statements required on almost all transactions over $10K; often requires annual updates to maintain |
Financial statements not required for most transactions up to $100K or more for some health providers |
| Down Payment |
Typically 20% to 30% required |
100% financing available |
| Hidden Costs |
Compensating balances, other bank charges, loan covenants |
None. No lease termination fee. |
| Effective Cost |
High due to longer depreciation schedule, larger down payment, adjustable interest rate, and other $$$ |
Low due to tax benefits, no down payment, longer lease term, and no compensating balance requirement |
| Soft Cost Coverage |
Cannot finance shipping, tech support, maintenance, etc |
All soft costs can be financed |
| Tax Benefits |
Depreciated over the IRS' useful life of the equipment |
Usually 100% deductible over the lease term |
| Sales Tax |
must be paid in advance |
Financed within monthly payment |
| Expensing |
Can only expense depreciation and interest |
Can expense 100% of the payment |
| Financial Reporting |
Carried on balance sheet as debt |
Not required to be reflected on balance sheet as debt |
