Is Leasing More Expensive Than Traditional Financing?

July 28, 2021

The largest, most sophisticated businesses in the United States choose to lease even while financing options are available to them.


Video Transcript


Speaker: Thomas Rahlfs, Senior Financing Consultant

Thomas Rahlfs: So the myth that we want to discuss today is that leasing is more expensive than traditional financing. So to get into that, let's first just take a step back and discuss the two products in detail. Uh, so the first is an equipment finance agreement or an EFA. finance agreement or an EFA. Uh, that's very comparable to a personal auto alone. In this case, the borrower is the owner throughout the term of the agreement. While the lender would just be the lien holder throughout the term of the agreement, the next would be a commercial equipment lease. This is a lease to own product, which often comes with significant tax advantages and savings and it also has the same goal of ownership through an earn as you pay structure.

Thomas Rahlfs: So is leasing more expensive than the financing? At the end of the day, the costs, either lease or finance your equipment are almost identical. The real savings of leasing comes in the flexibility of the options, such as skip payments, seasonal payments or step payments, and also any sort of tax savings that might be associated with the lease. The main thing to remember with both EFAs and lease options is that the cost of the funds is most closely associated with the credit quality of the applicant, and not the option with which you choose to fund your equipment purchase.

Thomas Rahlfs: Let's look at an example. The biggest savings customers see associated between the two different contracts generally lies with how sales tax supply. Let's say for this example that your business is located in Montgomery, Alabama, which carries a 10% sales tax. And your business needs to purchase of $50,000 piece of equipment. If you decided to go with the EFA option, your business would be required to pay that 10% sales tax or $5000 in this case, immediately after you take possession of the equipment. If you decided to go with the lease option, in this case, it would be a 10% purchase option lease. Your business would be able to pay that sales tax over their monthly payments to the lender. A lot of our customers tend to go with the lease option in this scenario, usually because you're able to avoid the hassle of having to pay that lump sum of $5000 immediately after you purchase the equipment. To supercharge your business visit beaconfunding.com/financinghero. beaconfunding.com/financinghero.



Produced with Vocal Video