Choosing the right financial product for your business needs is crucial in order to stay on budget. In this article, you will find the most important differences between a bank loan and a lease.
What is the difference between a loan and a lease?
A loan is borrowing money to purchase a piece of equipment and pay it back over time.
A lease is an agreement that allows you to use specific equipment for a period of time.
| Loan | Lease | |
| Amount | 60-80% of the purchase price. Banks typically do not include additional costs, such as delivery, installation, software licenses, or sales tax. | Up to 100% of the equipment price. Some leasing companies can also incorporate additional costs into your agreements. |
| Rates | Banks rely on Prime Rate or other indexes when determining an individual rate for your business. Therefore, rates and payments can fluctuate during the term. | Lessors determine a fixed rate upfront and offer equal payments month-to-month unless special provisions are included in the contract. That makes budgeting and cash flow management easier. |
| Terms | Banks offer a selection of standard terms and tend to be less flexible when it comes to special requests. | Equipment leasing agreements can be as short as 12 months and as long as 84 months. Sometimes, it is possible to request a balloon payment at the end to get lower monthly payments. |
| Equipment | It is easy for banks to lend money for popular products such as cars, but much harder for the types of professional equipment they do not understand. | Leasing companies specialize in working with industrial equipment. They understand your business and the equipment in use. |
| Collateral | Most banks require additional collateral such as other owned vehicles, real estate, or accounts receivable. | Only the piece of equipment being leased is required as collateral. Your other business assets are not involved. |
| Application | Banks take 2 to 3 weeks to review your file and make a decision. | Typically, a decision can be made in just 1 business day. |
Considering an equipment purchase?
Connect with our Account Executive to find a solution that suits your business needs.