Lease
A lease requires no down payment and finances only the value
of the equipment expected to be expended during the lease term.
The lessee usually has an option to buy the equipment for its
remaining value at lease end.
A lease requires only a lease payment at the beginning of the first
payment period which is usually much lower than the down payment.
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 that IRS depreciation
Schedules, resulting in larger tax deductions each year.
A lease does not include restrictive covenants that limit the lessee’s
ability to borrow future funds as long as the lessee is current with the
terms and conditions of their lease. Thus the lessor can not disrupt
the Lessee’s use of the equipment or demand payment in full.
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Loan
A loan requires the end user to invest a down payment in the equipment. The loan finances the remaining amount.
A loan usually requires two expenditures during the first payment period; a down payment at the beginning and a loan payment at the end.
End users may claim a tax deduction for a portion of the loan payment as interest and for the depreciation which is tied IRS depreciation schedules.
A loan agreement usually includes restrictive covenants that require the customer to maintain certain financial ratios that may restrict the customers ability to borrow future funds. If a customer violates a covenant the lender can demand payment in full.
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