Leasing vs Bank Loan for Apparel Decorating Equipment

LEASE

LOAN

Leases require no down payment and finances only the value of the equipment expected to deplete during the term of the lease. The Lessee usually has the option to purchase the equipment at the end of the lease for its remaining value.

Loans usually require the end user to invest a down payment in the equipment.The loan finances the remaining amount.

The leased equipment itself is usually all that is needed as collateral.

Loans often require the borrower to pledge other assets as collateral.

Leases can be structured so that the end user may claim the entire lease payment as a tax deduction. The equipment write-off is tied to the leaseterm, which can be shorter than IRS depreciation schedules, resulting in large tax deductions each year. The deduction is also the same every year, which simplifies budgeting.

End users may claim tax deduction for a portion of the loan payment as interest and for depreciation, which is tied to IRS Depreciation schedules.

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.

Financial Accounting Standards require owned equipment to appear as an asset with a corresponding liability on the balance sheet.

More of the cash flow, especially the option to purchase the equipment, occurs later in the lease term when inflation makes dollars cheaper.

A larger portion of the financial obligation is paid in today's more expensive dollars.