New equipment can be essential for a growing business. But is it better to lease or buy?
| |
Lease |
Buy
(with loan financing) |
| Down Payment |
None. Up to 100% financing including applicable taxes. |
10% to 25% of value. |
| Collateral |
Generally only the leased equipment is pledged. |
Purchaser may be required to pledge other assets to support borrowings. |
| Payments / cash flow |
Usually lower monthly payments; usually includes a purchase option at the end of the lease term. |
Higher monthly payments, but has the advantage of outright ownership after the loan term is completed. |
| Obsolescence |
Lessor may assume ownership at end of lease, unless option to buy is exercised by lessee. |
Purchaser owns the equipment and must deal with any obsolescence issues. |
| Term, amortization and interest rates |
Both leases and loans are available in a wide range of terms. Duration of agreement generally subject to negotiation based on useful life of the equipment financed. Interest rates also negotiable, but influenced by general rate environment. |
| Tax implications |
Rentals may be 100% tax deductible. |
Depreciation (CCA) & interest expense are tax-deductible. |
The tax rules and cost benefits relating to equipment financing can be complex, so it’s wise to consult with your accountant before making any major equipment purchase or committing to a lease.
