| 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. |
Loan:
A loan requires the end user to invest a down payment
in the equipment. The loan finances the remaining amount. |
|
Lease:
The leased equipment itself is usually all that is needed to secure a
lease transaction. |
Loan:
A loan usually requires the borrower to pledge other
assets for collateral. |
| Lease:
A lease does not contain restrictive covenants that limit the lessee's
ability to borrow future funds. As long as the lessee is current with the
terms and conditions of their lease, the lessor can not disrupt the
lessee's use of the equipment or demand payment in full of the outstanding lease payments. |
Loan:
A
loan agreement usually includes restrictive covenants that require the
customer to maintain certain financial ratios that may restrict the
customer's ability to borrow future funds. In the event the customer
violates one or more of the covenants, the lender has the right to demand
payment in full of the outstanding loan amount even though the loan
payments have been made on time. |
| 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.
|
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. |
|
Lease:
The end user transfers all risk of obsolescence to the lessors as there is
no obligations to own equipment at the end of the lease. |
Loan: The end user
bears all the risk of equipment devaluation because of new technology.
|
| 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.)
|
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. |
| 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. |
Loan:
Financial Accounting Standards require owned equipment
to appear as an asset with a corresponding liability on the balance sheet.
|
| Lease:
More of the cash flow, especially the option to purchase the equipment,
occurs later in the lease term when inflation makes dollars cheaper.
|
Loan:
A larger portion of the financial obligation is paid
in today's more expensive dollars. |
|
|
|
|
