| | Leasing | Bank Financing |
DOWN PAYMENT
| Usually two payments, or about five percent. | Typically 10 - 30%. |
INTEREST RATE
| Fixed Rate. If market interest rates go up,
your lease payments stay the same. | Usually floating rate; customer takes all risk.
If market interest rates go up, so does your
payment. |
TAX BENEFITS
| Usually 100% deductible; makes effective
rate lower. | Depreciation must be over five years. Principle
not deductible. |
EFFECTIVE COST
| Often lower than prime rate due to tax
advantages term, no down payment and
no required compensating balance. | Higher than published interest rate due to
hidden cost. |
| OPPORTUNITY COST | Leaves bank lines and cash free for
investments that provide higher yield. | Ties up bank lines possibly preventing more
opportunities in the future. |
TERM
| Up to five years on any equipment
over $5,000. | Usually 1 - 3 years. |
SOFT COSTS
| Will include software and installation
cost in the lease. | Usually will not finance software. |
IMPACT TO FINANCIAL
STATEMENT
| Footnote to balance sheet. No impact
to ratios. | Long-term liability. Reduces current ratios,
increases debt ratio. |
HIDDEN CHARGES
| None.
| Compensating balance, other bank charges. |
