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Business Resources - Growing Your Business

Keeping Cash Flowing

 

Leasing vs. Buying

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 itís wise to consult with your accountant before making any major equipment purchase or committing to a lease.

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08/10/2011 15:34:13