Lease or Loan to Finance
your Vehicles and Equipment? What you
need to know to decide.
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
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.
Ten Considerations in a
Lease or Loan Decision
1. How long will the equipment
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
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
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
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
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
Let Fisher Leasing Help You Manage Your Fleet