Advantages of Loans vs. Leases

Equipment Leasing Or Equipment Financing

That is the question.

LEASE vs. BUY is a common question when acquiring capital assets for a business. All things being equal, it is usually more advantageous to buy (finance) rather than lease especially thanks to Section 179 (https://en.wikipedia.org/wiki/Section_179_depreciation_deduction) ~ however there are exceptions and those are usually centered on two main fronts.

CASH FLOW:

https://www.investopedia.com/terms/c/cashflow.asp.

Leasing assets should, in theory, provide a lower payment. This is especially dependent upon the value of the equipment at the expiration of the lease term. This is known as the lease residual. The higher the residual value… the lower the payment during the lease term. Beyond that, the transference of tax benefits to the lessor should further decrease the lease payments. In short ~ Lower Payments improve cash flow.

And here is another compelling reason why a company might consider leasing.

Taxable Income: Another area that leasing may be beneficial relates to the lessee’s (the company acquiring equipment) taxable income. Tax rates and taxable income may, when the lessee has limited taxable income, allow for lower payments for them if the lessor can use those tax benefit.

Taxable Income: https://www.investopedia.com/terms/t/taxableincome.asp

Cash Flow, Taxes, Balance Sheet and a few other financial considerations might round out the longer list of why to lease versus buy / finance. Further, each situation is unique and thus should be address by a competent professional like your accountant! We are happy to help too & would welcome your call.

Doug Fuller

816.423.8021

dfuller@slsfinancial.com