Leasing vs bank loan

    leasing-vs-bank-loans-financingAt VAELL we work with our customers to determine the lease or equipment finance agreement that best fits their business needs. The information below highlights some of the important differences between equipment acquisitions achieved through leases versus bank loans.

    Banks usually require floating rates for loans. Rates are low now but will change as prime changes. Banks may require compensating balances and/or charge substantial fees.VAELL offers fixed rate financing. Payment remains the same for full term of lease. Rates are low when compared with banks Terms and Conditions.
    Banks often require down payments of 20% to 30% or more and may limit terms to 36 months or less with floating rates.VAELL offers 100% financing and may finance the soft costs associated with the equipment.
    Leasing preserves credit lines. Credit lines with banks and other depository institutions are precious and hard to establish. Conserve those lines for inventory, A/R or other uses and emergencies. BANK will take care of the financing for your capital equipment so that your lines of credit remain free.Uses up your credit lines.
    Leasing increases purchasing power. Your needs may be for a $50,000 machine but your available cash/credit only allows for $30,000, hence you settle for a smaller piece of machinery that only meets your needs half-way. VAELL can increase your purchasing power by allowing you to finance the needed equipment for the job. That way you get the equipment you need to meet demand and promote growth.Buying limits your purchasing power.You can only buy what you can raise the capital for in cash.
    Leasing balances usage and cost Leasing makes sense when the equipment you use creates a return that exceeds its cost. In other words, leasing allows you to set a fixed monthly payment for the use of equipment that creates an anticipated return exceeding that payment. That way you are certain that your operation is profitable and the equipment serves its purpose.When you buy , you end up paying for what you don’t use.
    With VAELL you expand your credit lines beyond your bank’s line of credit, building more resources for your growth.An equipment loan is a portion of your total credit exposure, and may limit your access to working capital or other required funding.
    VAELL has flexible terms and programs to meet your cash flow needs.Banks, in general, are not set up for step payments, delayed start of payments, or other unique structures.
    The leased equipment is usually all that is needed to secure a lease transaction.A loan usually requires the borrower to pledge other assets for collateral.
    More of the cash flow, especially the option to purchase the equipment, occurs later in the lease term when inflation makes dollars/shillings cheaper.A larger portion of the financial obligation is paid in today’s more expensive dollars/shillings.
    If structured properly, you can make your lease payments with pre-tax dollars and treat them as a business expense.You must capitalize the bank loan for tax and accounting purposes.
    The end user transfers all risk of obsolescence to the lessors, as there is no obligation to own equipment at the end of the lease.The end user bears all the risk of equipment devaluation because of new technology.
    When leases are structured as true leases, the end user may claim the entire lease payment as a tax deduction. The equipment write-off is tied to the lease term, which can be shorter than Revenue Authority’s depreciation schedules, resulting in larger tax deductions each year. The deduction is also the same each year, which simplifies budgeting (equipment financed as a conditional sale lease is treated the same as owned equipment).End users may claim a tax deduction for a portion of the loan payment as interest and for depreciation, which is tied to Revenue Authority’s depreciation schedules.