|
Leasing Non cancelable contract extending
over a fixed term |
Advantages
- 100% financing, including installation,
wiring, taxes, and software
- Conserves capital
- Preserves bank lines
- Flexible terms
- Hedge against inflation
- Obsolescence protection
- Fixed lease term and payments
- Full use of equipment without ownership
- Creates new credit source
- Easy add-on / upgrade
|
Disadvantages
|
|
Bank Loan Repaid in regular installments
|
Advantages
- Direct ownership
- Depreciation
- Appropriate when bank lines remain
untapped or there is a loan covenant
requirement
|
Disadvantages
- Capitalizes equipment
- Relatively short term, usually 24 or 36
months
- Extensive documentation
- Covenant restrictions
- Exhausts credit lines
- No obsolescence protection
- May require compensating balances
(usually 20% or more of the loan amount),
down payment, and/or origination fee
- Variable interest rate could rise
|
|
Cash Purchase Use working capital for
acquisition |
Advantages
- No finance charges
- Direct ownership
- Depreciation
|
Disadvantages
- Depletes cash reserves
- Reduces investment leverage
- No hedge against inflation
- No obsolescence protection
|
