What are the differences in a loan vs. lease? A loan is the borrowing of money while a lease is a term rental agreement for the use of a specific asset. As a means of financing, loans and leases have different benefits. Below are some major considerations affecting your decision.
Loan: Banks generally lend a portion (60%-80%) of the asset cost; exclusive of soft costs such as shipping, training, installation, etc.
Lease: Up to 100% financing is available including soft costs and sales tax.
Loan: Banks use fees to boost their rates of return on loans. Includes application fees, origination fees, commitment fees, schedule fees, funding fees and charged for expenses associated with approving and executing the loan application.
Lease: In leases, only arrangement fees are applied.
Loan: Banks tend to be less flexible than leasing companies. That is good if you are looking for a standard term but not so good if you need flexibility.
Lease: In most cases you choose the terms, the purchase option, and the down payment of your lease. 60-month terms on most equipment and up to 84 months on some asset classes are offered. Custom terms such as Seasonal, Deferred, or Step payments can easily be arranged. We can also structured contracts to meet any Capital or Operating Budget restrictions can be applied.
Loan: Banks will not finance assets as they do not understand or feel its collateral value.
Lease: Internal funding capability ensures finance for most asset types.
Loan: Regardless of the amount requested, most banks will not begin to review your credit until you supply a full financial package.
Lease: Leases is convenient and service oriented.
Loan: Banks are slow credit decision makers. It can take months to prepare your request and bring it to the credit committee for review.
Lease: Most of credit approvals are approved within a short period of time.
Loan: Banks usually secure their loans by requiring additional collateral such as real estate, equipment mortgage, inventory, receivables or clients house. In fact, it is common practice for banks to file a blanket lien against all current and future assets of your company.
Lease: In most instances, the only collateral is the equipment being leased.