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| Question |
Lease |
Loan/Credit Line |
Cash |
| What will your total costs be for the product and how much will you have to pay at date of purchase? |
Low up front cost - either one or two payments. Manageable monthly lease payment. Upgrade option on operating leases. Full ownership on capital leases. |
Typically at least a 20% down payment. Bank usually only finances 80% of total cost. Rates range from 10 - 18%. Full ownership at end of loan. |
Total due. Paying for product with after tax dollars. |
| What are your payment structure options? |
1 - 5 yr lease terms available. Buyout options: $1 or 10%. Ability to structure as operating or capital lease. |
Banks may restrict to shorter terms. |
Total due. Paying for product with after tax dollars. |
| How will it affect your cash flow & credit availability? |
Low up front cost - keeps working capital for business. If guaranteed - lease will show up on credit report. |
Large down payment often due. Listed as revolving debt on credit report. |
Cash flow may be depleted by large up front payment |
| What are the tax advantages? |
100% write-off when structured as operating lease |
Can only write off interest portion of loan. Principal is depreciated. |
Paying with after tax dollars |
| What about the concern of obsolescence? |
Upgrades and add-ons can be built into lease agreement to avoid obsolescence. |
You own the equipment at the end of payment regardless if it has become outdated. |
You own the equipment at the end of payment regardless if it has become outdated. |
| Overall comparison |
Low up front cost, retain capital strength, upgrade options, quick application process (no financials needed), asset management |
Company should keep their credit line available for emergencies - not equipment purchases. Difficult to set credit line up and once it is gone - its gone. |
Not a good option - want to keep as much money for working capital as possible |
