Equipment Lease Rates

Listen to Richard Western talk about why the rate is not as important as you might think.

"What is the equipment lease rate?" is one of the most commonly asked questions by business owners when investigating an equipment lease.

While an equipment lease rate is very important, it's not as significant as you might think it is.

For example, if you're doing a mortgage for a 25 year term then the rate is very very significant because the payment is amortized over a 25 year period. Every increase in half or one point can have a considerable effect on the monthly payment. 

Whereas equipment leases are short-term. Typically three, four or five year teams. The actual impact of a difference between one or two percent is relatively insignificant or small as the majority of the equipment lease payment goes towards the principal, and not interest.

So it's a popular misconception that the lessee becomes obsessed with the equipment lease rate. The lessee doesn't focus quite enough on the cash flow implications of an equipment lease.

Typically,  business owners overlook the value of being able to claim a business expense with an equipment lease while increasing their working capital and delivering greater profitability.

Equipment Lease Rates vs. Bank Rates

When dealing with a bank the loan rate maybe a little bit better, maybe even three or four points better, however there are other key business factors that must be taken into account.

With banks there is a continual reporting function required. This continual and mandatory reporting function can be very difficult, tedious and taxing for a business owner.

Another major factor is the difference in knowledge between a loans officer and an equipment leasing specialist. When dealing with the bank's personnel they know a lot about banking.  On the equipment side of the business, however, they may not have the business analysis skills, nor years of experience, that an equipment leasing specialist possesses to do a thorough analysis.

All in all, when looking at equipment lease rates vs. bank rates, the most significant factor is the short-term nature of a lease  where the vast majority of a payment goes to principal and not interest. 

Listen to Richard Western talk about why the rate is not as important as you might think.

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