To Lease or To Loan - That is the Question

Lease or Loan to Finance your Vehicles and Equipment?  What you need to know to decide.

When business owners and managers consider business vehicle and equipment acquisitions, they often think of their payment option as a “lease versus buy” decision.  In any economic environment, preserving your owner capital and cash is important.  Financing through a lease or loan helps your business preserve its cash.

 Choosing your Financing Option

 Whether you finance your business vehicles or equipment through a lease or loan, each has its advantages.  In evaluating your options, it’s important to look at each alternative to decide which will best fit your usage, cash flow and financial objectives.  To help determine the most appropriate option, consider the following questions.

 1.     How long will the equipment be used?

·       If the length of time the equipment or vehicle is expected to be used is a short or intermediate term (which usually means 60 months or less), leasing is likely the preferable option.  Vehicles and equipment expected to be used longer than five years could be a candidate for either a lease or loan.

 2.     What is the monthly budget for your vehicle and equipment?

·       With any ongoing business expense, consider the monthly cost for the vehicle and/or equipment and how it fits into your budget.  In general, leasing will provide lower monthly payments.

 3.     What is your cycling plan for your business vehicles?

·       Many small fleet customers look to recycle their business vehicles regularly or according to a plan to lower their repair and maintenance costs and to provide current vehicles to build their brands and keep employee morale up.  Fisher Leasing’s Fleet Management Team can help your business buy the right vehicle and the right price – you get what you want, don’t pay for options you don’t need, and at the right price.

    4.     How is the business vehicle or equipment going to be used?

·       Business vehicles and equipment are revenue-producing assets.  The assets need to operate to generate revenue.  Leasing will provide you the flexibility for skip or irregular payments, step-up payments and payment schedules that will match for cash flow.

5.     How much cash will be required upfront for a lease and for a loan?

·       Leasing can provide 100% financing of the cost of the business vehicles and equipment as well as transportation, delivery, up-fits, and other deferred costs such as sales tax and licenses.  Loans usually require a down payment and do not include other cost benefits.  Also, banks usually take blanket liens on all of your business assets and not just on vehicle or equipment financed as a lease does.

6.     Can the company use the depreciation or would the company get a greater benefit from expensing the lease payments?

·       The tax treatment of the financing is important to your company in choosing between a lease and loan.  A loan provides you with the depreciation tax benefit; with a lease, the lessor owns the equipment and realizes the tax benefit, which is usually reflected in a lower monthly rental payment for your business as well as the ability to expense the entire payment.  In a lot of cases, if your business can’t use the tax benefit, it makes more sense to lease than to purchase through a loan because you can trade the depreciation to the lessor in exchange for better cash flow.

 7.     How will a line of credit be impacted?

·       Many businesses have an operating line of credit through a bank that they use for inventory purchases, improvements and other capital expenditures.  Depending on your loan agreement covenants, it is possible to preserve your bank line by leasing through an independent leasing company.  Our leases have fixed interest rates and the assets leased are the only collateral, not a blanket lien on all of your business assets.

 8.     How flexible does your business want the financing terms to be?

·       A lease can provide greater flexibility, since it can be structured for a variety of contingencies, where a loan is less flexible and subject to the lenders rules.  If your business has continuing use for the equipment at lease termination, extended rentals, purchase options, trade-ups and return options are all available depending on your situation.  The lease term allows your business to match all expenses to the term of the business vehicles and equipment’s use, including income tax expense, book expense and cash expense.

9.     Do you anticipate the need for additional equipment under your financing agreement?

·       If your business is planning for growth, you can use our Master Lease that allows you to acquire multiple business vehicles and equipment under multiple schedules with the same basic terms and conditions.  This provides greater convenience and flexibility that a typical loan, which needs to be renegotiated for additional asset acquisitions.

 10.  Who can help me evaluate what’s best for my business?

·       Whether you finance your business vehicles or equipment through a lease or loan, each has its advantages.  When making your decision, give us a call to help secure the best possible terms for your financing.