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Check out this side-by-side comparison of lease vs. bank loan financing, and notice the position on each after a 3 year or 5 year term. Don't forget, most of our equipment financing is lease-to-own, so you are able to write off the entire sum of rental payments for each taxable year and still own the equipment at the end of the term. Corporate and Sole-Proprietorship/ Partnership tax rates will vary.
Lease vs. Loan: Making the Right Financial Choice for Your Business
Lease:
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Equipment Ownership: While leasing, the leasing company, which we set you up with, owns the equipment, and you make payments as if you're renting it. However, at the end of the term there will be a small residual which acts as a bill of sale, transferring ownership to you.
Down Payment: Little to no down payment is typically required for leasing.
Payment Frequency: Lease payments can be tailored to match your cash flow, with options like monthly, seasonal, semi-annual, or annual payments.
Collateral Requirement: Leasing doesn't usually demand collateral since the leased equipment serves as the security.
Depreciation and Tax Implications: For operating leases, you pay like rental payments, and these expenses can be fully written off. See above comparison.
Equipment Obsolescence: Leasing offers the option to trade up equipment regularly, even during the lease, guarding against obsolescence.
Credit Impact: Leasing safeguards your credit line for other opportunities.
Loan:
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Equipment Ownership: Through a loan, you assume complete ownership of the equipment.
Down Payment: Loans generally require a sizeable down payment, with the remaining equipment cost financed.
Payment Frequency: Monthly payments are common, but they can be adjusted based on your financial institution's flexibility.
Collateral Requirement: Depending on your credit, you might need to offer other assets as collateral to secure the loan.
Depreciation and Tax Implications: With a loan, you own the equipment, so you amortize it over its useful life. Tax deductions come from the interest paid and annual amortization, based on guidelines set by the CRA.
Equipment Obsolescence: As the equipment owner, you bear the risk of obsolescence.
Credit Impact: Securing a loan will influence your credit line, and your ability to borrow as a self-employed individual.
In deciding whether to choose a lease or a loan, it's vital to consider your business's financial status and equipment needs. Both options aim to preserve your financial flexibility and cash flow, but your specific circumstances will guide your choice.
Still uncertain about which route to take?
Don't hesitate to contact us at 1-844-250-EASE. Our dedicated team is available to guide you through your equipment financing queries. And remember, consulting with an accountant can offer further insight into your tax position.