Why lease equipment vs. getting a loan?
A loan is an agreement for a borrower to receive a fixed amount of cash from a creditor, i.e. – the principal, and make installment payments of principal and interest over the term of the loan. In many cases, the interest rate may vary with some underlying interest rate (i.e. – the Prime Rate at some major banking institution), resulting in unpredictable payment amounts over the term of the loan. At the end of the term, assuming all payments were made in a timely manner, the amount has been completely paid off. In the accounting process for a loan, each party should record the associated principal and interest of each payment, where only the interest is revenue to the creditor or an expense to the borrower. Assuming the principal amount was used to purchase equipment, all of the issues of owning equipment, such as full accounting and filing property tax for each piece of equipment, are the responsibility of the borrower. Many loans require extra requirements by a creditor. For instance
