What
are the Differences Between a Lease and a Loan?
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Businesses leases up to
$75,000 with a simple 1 page application. This is faster, less
tedious and a much more streamlined process than commercial
lending.
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Loan:
A loan requires the end user to invest a down payment in the
equipment. The loan finances the remaining amount.
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Lease:
A lease requires no down payment and finances only the value of the
equipment expected to be depleted during the lease term. The lessee
usually has an option to buy the equipment for its remaining value
at lease end.
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Loan:
A loan usually requires the borrower to pledge other assets for
collateral.
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Lease:
The leased equipment itself is usually all that is needed to secure
a lease transaction.
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Loan:
A loan usually requires two expenditures during the first payment
period; a down payment at the beginning and a loan payment at the
end.
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Lease:
A lease requires only a lease payment at the beginning of the first
payment period which is usually much lower than the down payment.
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Loan:
The end user bears all the risk of equipment devaluation because of
new technology.
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Lease:
The end user transfers all risk of obsolescence to the lessors as
there is no obligation to own equipment at the end of the lease.
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Loan:
End users may claim a tax deduction for a portion of the loan
payment as interest and for depreciation, which is tied to IRS
depreciation schedules.
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Lease:
When leases are structured as true leases, the end user may claim
the entire lease payment as a tax deduction. The equipment write-off
is tied to the lease term, which can be shorter than IRS
depreciation schedules, resulting in larger tax deductions each
year. The deduction is also the same every year, which simplifies
budgeting (Equipment financed with a conditional sale lease is
treated the same as owned equipment.).
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Loan:
Financial Accounting Standards require owned equipment to appear as
an asset with a corresponding liability on the balance sheet.
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Lease:
Leased assets are expensed when the lease is an operating lease.
Such assets do not appear on the balance sheet, which can improve
financial ratios.
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Loan:
A larger portion of the financial obligation is paid in today's
more expensive dollars.
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Lease:
More of the cash flow, especially the option to purchase the
equipment, occurs later in the lease term when inflation makes
dollars cheaper.
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