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Better than a loan: Fixed rates. No
cross-collaterization. No restrictive borrowing covenants.
No Compensating Balances: To get that “Low Rate” most banks will require you to keep 20%-30% of the loan amount in your non-interest bearing accounts. This effectively raises your rate (ex. a 6.75% loan is really a 26% loan).
No down payment:
Loans require a large down payment in advance. Leasing
generally only requires a first and last payment.
100% Financing:
Your lease payments are fixed for the term and are not
subject to prime interest rate increases. In most cases,
the full amount of the equipment, as well as the service, shipping,
installation costs and maintenance (even software!) can be included
in the lease. This spreads the cost out evenly over the term
of the lease, freeing up your money to work harder for you.
Tax advantages: Leasing offers significant tax deductions.
Write off up to $100,000 and take another 50% off on your 2003-2005
taxes. Payments of operating leases can be written off 100%.
Monthly payments on operating leases are typically viewed as
operating expenses, offering significant tax benefits.
Ability to borrow in the future:
An operating lease does not affect your ability to borrow in
the future, because it is not considered debt on your balance
sheet. This helps you maintain a healthy debt-to-asset
ratio, making your business more attractive to lenders when
you need them the most. Creditors - especially banks - establish
a limit on the amount of credit they are willing to extend.
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