Extended capital-markets CFO
A loan generally funds equipment you own; a lease gives you use under agreed terms. Compare the cash required at the start, every payment, final obligations and the asset rights left at the end. A lower monthly payment may reflect a larger residual obligation or less ownership, rather than cheaper financing.
Define the operating plan first
Will the business keep the asset, refresh it on a schedule or use it for one contract? That answer shapes the value of ownership and return rights. A production line expected to remain in place and technology likely to be replaced in a few years deserve different comparisons.
Put both proposals on the same schedule
Use equal equipment cost, funding date and analysis period. Show deposits, fees, rent or principal and interest, required maintenance, insurance and final payments. Lease structures vary, so do not infer a purchase option or return right from the word lease.
Market reference: ELFA: lease and loan comparison; ELFA: types of equipment financing.
Price the flexibility you may need
Early replacement, relocation, upgrades and disposal can be central business requirements. Ask for specific treatment in the proposed documents. An inexpensive-looking structure that prevents a planned equipment refresh may be unsuitable. Review the effect of one default on other equipment schedules and company facilities.
Keep tax and accounting separate from cash economics
Ask your advisors to compare the actual arrangements under the applicable reporting and tax rules. In the US, a lease label does not by itself remove the obligation from the balance sheet. First establish the pre-tax cash comparison; then layer in verified tax and accounting effects rather than marketing assumptions.
Market reference: FASB: Leases, Topic 842.
Illustrative example, not a client result
The decision in practice
Two proposals show different monthly payments. The lower-payment proposal requires a final purchase amount; the other repays the financing during the term. Include that final amount and the ownership outcome before deciding that the first proposal saves money.
What to prepare
- Equipment specification and planned holding period
- Complete lease and loan payment schedules
- Purchase, return, renewal and early-exit provisions
For an initial conversation, a summary is enough. Share private materials only through an agreed channel.
Common questions
Is a lease rate directly comparable with a loan interest rate?
Often not from the headline alone. Compare complete cash flows and ownership outcomes; a lease factor is not automatically an annual interest rate.
Is leasing automatically off balance sheet?
No. Accounting depends on the applicable standard and transaction details, not the sales description.
Sources and further reading
Our decision framework is CFO Signals analysis. External references describe market practices and products, not an endorsement, partnership or available offer. Terms and eligibility require confirmation for your transaction.