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Leasing vs Bank Borrowing

Leasing vs Bank Borrowing

When considering the different financing options for acquiring equipment, a common question many businesses have is whether they should opt for leasing or bank borrowing. Although many businesses opt for bank borrowing because they might have a better understanding of how it works, there are some great benefits leasing can provide that should not be overlooked. Here is a quick break down of the benefits of leasing versus bank borrowing:

Leasing

  • Sales tax payable over term of lease.
  • Conserves valuable working capita.l
  • Conserves Cash – 100% financing (no down payment).
  • Fixed rate for life of lease.
  • Keeps credit lines open.
  • Transfers risk of equipment obsolescence to lender.
  • Leasing can save your money.
  • Eliminates risk of Alternative Minimum Tax.
  • Recorded off the company’s balance sheet.
  • Payments can be structured to creatively fit the borrower’s needs.
  • Provides a quick and simple financing solution that can close in days.
  • Saves bank credit lines for growing your business.
  • Term of lease can be longer (60-72 months).
  • Asset can be upgraded easier.
  • Payments may be 100% tax deductible.
  • Finance soft costs like freight, warranties, installation, training, etc.
  • Reduces taxable income as lease is paid for with before-tax monies.

Bank Borrowing

  • Sales tax due up front.
  • Short term money is not used for long term purpose.
  • Requires large down payment (usually 20% to 30%).
  • Floating Interest Rate.
  • Uses credit lines that could be utilized for operations 100% obsolescence risk.
  • May be more expensive than leasing.
  • Potential liability to Alternative Minimum Tax.
  • Booked on balance sheet.
  • Inflexible payments.
  • Normally requires more time and paperwork to execute.
  • Uses bank lines for depreciable assets.
  • Term of loan is restricted (12-36 months).
  • Asset harder to dispose of.

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