Purchase vs. Lease

[knucklehead98]

I ave entertained the thought of going into business for myself. One of the many problems is that I have poor credit. What would you recomend, leasing or buying.

 

[jmac]

.Things to think about when leasing:

The rate
the term
the residual
ucc filings
blanket liens
buy out.

all these are why most are scarred of a lease because they can vary so much from lease to lease. A bank note is cut and dry.

rate (fixed)
term

I think you have to take it case by case and get the best deal you can from both and compare. Some may not get a bank to do a term note at a fixed rate so a lease is the only option. From a tax stand point you deduct it one way or the other, just make sure you depreciate the total amount borrowed or paid to buy the machine not the purchase price, and if the term note is not at a good interest rate like you can get now 6% fixed then a lease could be better, but if you can borrow money at 6% fixed, no ucc, blanket liens, 60 to 72 month term then the bank looks pretty good, again it all depends on your credit and what each can do for you, every situation is different

 

[Finance Guy]

From finance class 101...

" Lease what depreciates; Buy what appreciates."

Bottom Line.

 

[Orchard Ex]

From finance class 101...

" Lease what depreciates; Buy what appreciates."

Bottom Line.

Oh, well then if that's the Bottom Line...
I'd like a 24 hr lease on a large pepperoni pizza and a 6 pack. Upon turn in they'll be in the same condition as that advice. Bottom line.



Buying, Leasing, Renting, Beg Borrow or Stealing (OK not stealing) can all be the "best" acquisition method depending on the company and the specific situation.

 

[Finance Guy]

Orchard Ex... Make it a family size and an invite.

 

[Orchard Ex]

:thumbsupCome on over, I just called it in :beerchug

 

[Willis Bushogin]

Leasing

Orchard Ex... Make it a family size and an invite.

Glad to have you on this site, to answer all the questions. This is just a remark, to the leasing question. My accountant told me to lease everything, dont pay cash for it (equipment) I dont even try to keep up with all the tax stuff, but he told me the lease to buy loans, were almost 100% tax write off. No I'm not a big company, just trying to get started, like a bunch of other people. When I started 4 years ago, I borrowed the money to buy my backhoe, from a leasing company ($20,000.00) about 3 years ago I borrowed the money, from the same leasing company for a dozer. To make the story short, I paid off the backhoe, then I paid the dozer off 4 months early. Whatever kind of lease I had, it was a $1.00 buy out. I had good success with these two leases and I just got two more leases for a mulching machine and truck to pull it.
Im sure its a lot of difference in the auto/truck lease from a car lot, verses, equipment leases
Not sure if this helps anyone, but its the way I went.

 

[Finance Guy]

Willis Bushogin... Great information. Good to hear!

And yes, equipment leases are completely different than an auto lease.

Todd

 

[Sparffo]

tuney443... I finance small businesses everyday and, respectfully, I have no idea what you are talking about.

FG

if i understud what tuney443 was talking about, was thet you can't do modifications on your leased equipment! like welding a demolitionshield to the cab (example).
I have got offers on leasing BROKK demolition robots, but that sounds crazy to me ointhead they have to be working when the lease ends

 

[Finance Guy]

if i understud what tuney443 was talking about, was thet you can't do modifications on your leased equipment! like welding a demolitionshield to the cab (example).
I have got offers on leasing BROKK demolition robots, but that sounds crazy to me ointhead they have to be working when the lease ends

This is news to me...

Todd "Finance Guy"

 

[Sparffo]

This is news to me...

Todd "Finance Guy"

but thanks to you Todd!

I will talk to my accountant next week and see how it works here in Finland, the tax issues can be different.
on excavators and loaders the leasing could work well

 

[Finance Person]

bank risk

.Things to think about when leasing:

The rate
the term
the residual
ucc filings
blanket liens
buy out.

all these are why most are scarred of a lease because they can vary so much from lease to lease. A bank note is cut and dry.

rate (fixed)
term

I think you have to take it case by case and get the best deal you can from both and compare. Some may not get a bank to do a term note at a fixed rate so a lease is the only option. From a tax stand point you deduct it one way or the other, just make sure you depreciate the total amount borrowed or paid to buy the machine not the purchase price, and if the term note is not at a good interest rate like you can get now 6% fixed then a lease could be better, but if you can borrow money at 6% fixed, no ucc, blanket liens, 60 to 72 month term then the bank looks pretty good, again it all depends on your credit and what each can do for you, every situation is different

A bank note is far from cut and dry. I highly recommend you read through a bank loan contract in its entirety. Most are usually 15 pages long which probably include blanket liens on your business. On top of that a loan will show up on your personal credit as exposure which could potentially limit your borrowing power in the future. Multiple equipment loans or exposure with a bank can halt your business's borrowing power in times of need or crisis. Also with a loan you pay most of the interest off in the first 2 years so when you look to buy out early of 5 year term you end up paying the principal which is the probably the remaining balance if one were to look out for an early buyout.

A bank loan is a bigger risk then you think!





A bank note is far from cut and dry.

 

[roddyo]

short term lease?

How about a short term lease with a buyout after 12 months? What kind of terms on something like that.

 

[Finance Person]

There are lease options where you can lease purchase the equipment for 12 months and set your buyout to either a $1, FMV(Fair Market Value), 10% or 20% buyout. The question here is why do you want to pay equipment off that is going to depreciate? Would you pre pay an employee? Of course not! Its makes more sense to put the equipment on lease for at least 24 months or more on an equipment $15,000 or over and let it make you money. The lease will stay off your personal credit, 100% tax deductable, payments are fixed on a schedule to simply expenses, offer hedge against interest rates, protects business from inflation and allows companies to project future cash outlays with greater accuracy.

Furthermore most banks are not giving 100% loans anymore especially on used equipment. All leases finance up to 110% which includes soft cost like delivery.

The golden rule here is to preserve your bank lines, invest in cash on items that appreciate and lease equipment that depreciates, especially if the 2009 stimulus plan gives you a great incentive for it.

The 2009 Economic Stimulus Plan calls for equipment purchases incentives include a special 50-percent equipment depreciation allowance for 2009 purchases and on top of that your Tax section 179 expense election amounts doubles for 2008 to $250,000 equipment purchases. To qualify for the 50 percent special depreciation allowance under the new law, the equipment must be placed in service after Dec. 31, 2008, but generally before Jan. 1, 2010. This is the year to buy!!!!!

 

[Orchard Ex]

The 2009 Economic Stimulus Plan calls for equipment purchases incentives include a special 50-percent equipment depreciation allowance for 2009 purchases and on top of that your Tax section 179 expense election amounts doubles for 2008 to $250,000 equipment purchases. To qualify for the 50 percent special depreciation allowance under the new law, the equipment must be placed in service after Dec. 31, 2008, but generally before Jan. 1, 2010. This is the year to buy!!!!!

Are you saying that you can depreciate leased equipment?

 

[roddyo]

There are lease options where you can lease purchase the equipment for 12 months and set your buyout to either a $1, FMV(Fair Market Value), 10% or 20% buyout. The question here is why do you want to pay equipment off that is going to depreciate? Would you pre pay an employee? Of course not! Its makes more sense to put the equipment on lease for at least 24 months or more on an equipment $15,000 or over and let it make you money. The lease will stay off your personal credit, 100% tax deductable, payments are fixed on a schedule to simply expenses, offer hedge against interest rates, protects business from inflation and allows companies to project future cash outlays with greater accuracy.

Furthermore most banks are not giving 100% loans anymore especially on used equipment. All leases finance up to 110% which includes soft cost like delivery.

The golden rule here is to preserve your bank lines, invest in cash on items that appreciate and lease equipment that depreciates, especially if the 2009 stimulus plan gives you a great incentive for it.

The 2009 Economic Stimulus Plan calls for equipment purchases incentives include a special 50-percent equipment depreciation allowance for 2009 purchases and on top of that your Tax section 179 expense election amounts doubles for 2008 to $250,000 equipment purchases. To qualify for the 50 percent special depreciation allowance under the new law, the equipment must be placed in service after Dec. 31, 2008, but generally before Jan. 1, 2010. This is the year to buy!!!!!

If I want a $100,000.00 excavator on a 12 month lease with around a $75,000.00 FMV what am I looking at payment wise?

 

[Finance Person]

Below is A through C credit price ranges.

Equipment Cost $100,000
12 month term payment: $8784.87 to $9167.99
24 month term payment: $4607.34 to $4992.42
36 month term payment: $3221.43 to $3615.23
48 month term payment: $2533.38 to $2937.50
60 month term payment: $2124.44 to $2538.47

 

[PSDF350]

What is a-c credit?

 

[JDOFMEMI]

Like a score card of your credit rating.
"A" credit is really good, and gets you a lower interest rate, "C" credit is fair, and gets you a higher rate. Worse than "C" likely gets you an answer of no thanks.

 

[PSDF350]

Like a score card of your credit rating.
"A" credit is really good, and gets you a lower interest rate, "C" credit is fair, and gets you a higher rate. Worse than "C" likely gets you an answer of no thanks.

Kinda figuired that. My question is more what is A B and C.