Loan-rates are usually floating and based on Prime Rate or another index such as LIBOR. As the index flucuations so does the monthly payment. This is beneficial during periods of falling interest rates, and detrimental when interest rates rise.
Lease- payments are generally fixed for the life of the lease unless the lease has special provisions
AMOUNT FINANCED
Loan-banks generally lend a portion (60%-80%) of the equipment cost; exclusive of soft costs such as shipping, training, installation, etc.
Lease- able to finance the complete purchase including soft costs and sales tax. Out-ofpocket costs are usually limited to the first month's investment or a nominal security deposit.
EXTRA COSTS
Loan-banks use fees to boost their rates of return on loans, including application fees, origination fees, commitment fees, schedule fees,funding fees and charges for expenses associated with approving and executing the loan application.
Lease-in 99% of small-ticket equipment leases ( up to $150,000 ) there are no origination, commitment or application fees. Documentation fees are nominal, ranging from $95 to 250 depending on the transaction size
AVAILABLE TERMS
Loan- banks tend to be somewhat less flexible than leasing companies in the terms they offer.
Lease-in most cases you choose the terms, the purchase option, and the down payment. We offer 60-month terms on most equipment and up to 84 months in some cases. For Municipalities and government agencies we can offer up to 15 year terms. Custom terms to meet your individual needs are easily arranged.
EQUIPMENT TYPES
Loan-banks won't finance equipment they don't understand or feel has limited collateral value.
Lease-our funding capabilities ensures we willl finance vertual any equipment that generates income for your business.
EASE OF APPLCATION
Loan- regardless of the amount requested, most banks won't begin to review your credit until you supply a full financial package. ( tax returns,personal fiancial statements,interim financial statement )
Lease-leasing with Magellan is convenient. We pride ourselves in service. We offer lease programs up to $150,000 with the completion of our one page application.
SPEED
Loan-banks are historically slow in making credit decisions. It can take weeks to prepare your request and then your request goes to credit commitee for additional review.
Lease-at Magellan our approval are issued within hours in many cases.
COLLATERAL
Loan-banks usually secure their loans by requiring additional colateral such as real estate, equipment, inventory, or receivables. In fact, it is common prctice for banks to file a blanket lien against all assets of your company.
Lease-in most instances, the only collateral is the equipment being leased.
RESTRICTIVE COVENANTS
Loan- bank loans ofen require that the borrower maintain certain minimum financial ratios and report them to the bank on a quarterly basis. If the borrower fails to maintain those ratios the bank can call the loan. They can also place restrictions on or limit future borrowings from other lending sources.
Lease- there are no restrictive covenants. |
A loan is the borrowing of money while a lease is a term rental agreement for the use of specific equipment. As a means of financing, loans and leases have benefits and drawbacks. Below are some major considerations affecting your decision.