While banks serve an important role in the growth of your business, bank loans carry with them certain limitations and determining factors that are not imposed when leasing. Here's why:
Line of Credit: If you currently have an LOC with your bank, a lease may be deducted from your Line of Credit even if not directly borrowed from the LOC. Before accepting a lease from your bank, ask if the amount will be deducted from the LOC you are hoping to protect. A good reason to consider commercial leasing.
Account Balance: A minimum account balance may be required to borrow from your bank. If you are sensitive to rate, then take this into account when considering a bank loan. (Ask your financial advisor for specifics). Another reason to consider commercial leasing
Additional Collateral & Liens: Only in very special cases will a leasing company require additional collateral. Generally, the leased equipment IS the collateral and no other collateral is required. However, banks often require collateral and may attach a lien to your business until the loan is paid off. Additional collateral may consist of other pieces of equipment and/or real estate. Blanket liens may include accounts receivables and/or inventory. Yet another reason to consider commercial leasing!
Loan Amount: A traditional bank loan covers 80% of the cost, requiring 20% down, and serving as immediate equity. The 80% does not include taxes, installation, service contracts, freight, any other “soft costs” or non-valued items. Leasing, however, will cover 100% of the cost, including the “soft costs” mentioned above. Your down payment will be your first payment and either your last payment or a security payment. Why not use a commercial leas?
Credit: The credit window for a bank is strict and narrow. Your credit score needs to be high, your bankruptcy score low and your credit clean. That means no late payments, no open suits, no liens or judgments, and no bankruptcy in your past. The best reason to use a commercial lease!
As you can see more small businesses would benefit from a commercial leasing agreement, then traditional loans. The next time you consider acquiring commercial equipment, consider a leasing.
