Revenue Objectives Int'l., LLC.

Lease vs. Loan….. 

Why choose a business lease:

Cash Flow – monthly payments are generally smaller for leases than for loans and they usually require a smaller or no downpayment.

Use vs. Ownership – many businesses have discovered they don’t need to own the equipment they use. In the past, renting and leasing were frowned upon. Today’s psychology looks more to the economics rather than the moralities of ownership.

Benefits of Leasing

CONSERVES CAPITAL: Leasing eases the strain on working capital by providing 100%

financing. By converting a large cash sale price into a low and affordable monthly payment, your

customer will have more money available to invest in profit generating activities.

PROVIDES TOTAL FINANCING: Leasing offers 100% financing usually without any money down. Installation, delivery, and other costs not financed by a bank can be in the lease. Taxes may be included in the lease.

KEEPS EQUIPMENT UP TO DATE BY EXPANDING BUDGET LIMITS:

Lease payments are lower than monthly installments, and make the most of your customer’s current budget. Your customer can acquire all of the equipment necessary to meet current needs, rather than being forced to make do with outdated or inferior equipment due to budget restraints.

LESSENS THE IMPACT OF INFLATION: Offset inflation with fixed lease payments by acquiring equipment at today’s prices, and paying for it with tomorrow’s less

valuable dollar. The monthly payment is 100% tax deductible as a business expense.

PROVIDES CREDIT ALTERNATIVE: The decision to lease allows your customer to retain

intact the existing line of credit they have established at the bank. This is essential to expanding

their business because growth requires working capital from every available source.

OFFERS FLEXIBILITY: As business grows or technology changes, additional or upgraded equipment will be required. With leasing, your customer can add or upgrade equipment through add-on or master leases. You can have deferred payments, step/up or step/down payments, seasonal payments, etc.

TAX ADVANTAGES: Reduce Tax Liability

TAX BENEFITS: Depreciation and interest on debt produce potential tax benefits.

BETTER LOOKING FINANCIAL STATEMENTS: Certain leases provide the user with “offbalance sheet” accounting treatment.

 Lease vs. Loan

Loan: A loan requires the end user to invest a down payment in the equipment. The loan finances the remaining amount.

Lease: A lease requires no down payment and finances only the value of the equipment expected to be depleted during the lease term. The lessee usually has an option to buy the equipment for its remaining value at lease end.

Loan: A loan usually requires the borrower to pledge other assets for collateral.

Lease: The leased equipment itself is usually all that is needed to secure a lease transaction.

Loan: A loan usually requires two expenditures during the first payment period; a down payment at the beginning and a loan payment at the end.

Lease: A lease requires only a lease payment at the beginning of the first payment period which is usually much lower than the down payment.

Loan: The end user bears all the risk of equipment devaluation because of new technology.

Lease: The end user transfers all risk of obsolescence to the lessor as there is no obligation to own equipment at the end of the lease.

Loan: End users may claim a tax deduction for a portion of the loan payment as interest and for depreciation, which is tied to IRS depreciation schedules.

Lease: 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 IRS depreciation schedules,

resulting in larger tax deductions each year. The deduction is also the same every year, which simplifies budgeting. (Equipment financed with a conditional sale lease is treated the same as owned equipment.).

Loan: Financial Accounting Standards require owned equipment to appear as an asset with a corresponding liability on the balance sheet.

Lease: Leased assets are expensed when the lease is an operating lease. Such assets do not appear on the balance- sheet, which can improve financial ratios.

Loan: A larger portion of the financial obligation is paid in today's more expensive dollars.

Lease: More of the cash flow, especially the option to purchase the equipment, occurs later in the lease term when inflation makes dollars cheaper.

Ten Reasons to Lease Equipment vs. Purchase

1. USE OF EQUIPMENT IS THE USE OF AN ASSET – No business pays its employees

in advance: they pay people as they contribute. It should be no different with a

contributing asset like business equipment. Leasing enables you to pay as you use.

2. FIXED PAYMENTS – Monthly payments on a lease are generally fixed for the entire

term of the lease. This is a distinct advantage in times when many financing transactions

have floating interest rates. Knowing in advance what your payments will be enables you

to budget and manage equipment dollars for a long time.

3. LONGER TERMS – Many banks only lend money short term; usually 12 – 36 months. In

lease arrangements the term can be as long as 84 months and, in some cases, even

longer.

4. NO DOWN PAYMENT – Most traditional financing options require a sizable down

payment. On cash purchases, this can be as much as 20% down. No down payment

required in the majority of our leases.

5. 100% FINANCING – Traditional methods of financing usually do not include “soft” items

such as installation and freight. A good lease transaction includes both of these, thereby

allowing the lessee to finance the total package.

6. FLEXIBILITY – Leasing provides a customer with greater structuring flexibility. JMV

Associates’ financial specialists are aggressive entrepreneurs who find ways to

structure the lease to fit the needs of the customer. This allows the lessee the

opportunity to make the most of our lease structure variables, purchase options, etc.

7. SIMPLER THAN BANK LOANS - Leasing programs and procedures are specifically

designed to take the “red tape” out of financing capital equipment for business. In

today’s restrictive banking environment we can be more aggressive and flexible than

other financial institutions.

8. CONSERVATION OF CAPITAL – Because of the sizable cash outlay involved in

purchasing new equipment, many businesses lease to conserve capital. Money that

could be used to buy inventory, advertise, or hire personnel, is preserved for that

purpose, rather than purchasing equipment that is worth less as time passes.

9. EASIER CASH FLOW FORCASTING – Leasing simply dollars-per-month financing,

helps an equipment user fit a monthly payment into a budget. Because payments are

fixed, user can continue to intelligently budget into the future.

10. TAX BENEFITS – A business lessee can usually deduct their monthly payment as an

operating expense. This clearly reduces the net cost of the lease. While it is always

advisable to talk to your accountant first, leasing is generally to the advantage in most

businesses.

**Under the Alternative Minimum Tax rules (AMT), ownership of equipment triggers

depreciation.