LEASING vs. BANK LOANS or CASH

LEASE

A non-cancelable contract extending over a fixed term at a fixed payment.

It has tax-timing benefits.

ADVANTAGES

• 100% Financing (includes shipping, installation, software, services, etc.)
• Convenience
• Conservation of Capital
• Stretches Budget
• Protects Against Obsolescence
• Tax Benefits

DISADVANTAGES

• Non-cancelable

BANK LOAN

A loan repaid at regular intervals.

ADVANTAGES

• Direct Ownership
• Appropriate when bank lines are not being used for short term needs

DISADVANTAGES

• Limited Equipment covered
• Short term
• Extensive documentation
• Tangible asset financing only
• Uses valuable credit lines
• Large down payment or fees required
• Floating loan rates
• Less flexible payment terms

CASH

Working capital that pays for the equipment & other costs.

ADVANTAGES

• No finance charges
• Direct ownership
• Appropriate when:
• There is an excess of cash and no viable investment alternatives
• Annual depreciation expense exceeds annual capital expenditures

DISADVANTAGES

• Decreases company's capital reserve
• Minimizes investment leverage
• No hedge against inflation
• No obsolescence protection