Is a lease better than a non-traditional loan?

 Kevin F. Clune, CLFP

Just when I thought I was aware of the competition in the equipment leasing industry, I find there are new players on the field….or at least in an adjacent field. “A handful of payments companies including Square and PayPal are moving beyond their core market…to take advantage of an opportunity to help small businesses grow.” This is the opening statement in a February 2015 article by John Heggerstuen in Business Insider.

The new banking regulations that were implemented following the 2008 financial crisis are responsible for this trend, according to the piece. As a result, banks severely restricted access to capital, disproportionately affecting fledgling and medium-sized businesses. Data revealed that annual loan originations to businesses with $1 million or less in revenue fell dramatically between 2007 and 2013. 

How does this affect the space in which our company participates? While Clune & Company functions only in the equipment finance industry, at our core, our company is essentially a lender.

Would there be a possibility of losing customers to these new lenders? This would be an issue only if the capital is used to purchase equipment that could have been financed by an equipment lease.

What are the differences between these options


          1.)   Convenience: With a lease, 100% of the equipment invoice is paid by the leasing company
                 directly to the 
equipment vendor.

          2.)   Easy Budgeting: Unlike these loans, the payment remains the same throughout the life of the
                 lease. The
alternative lenders take a percentage of sales.

          3.)   Preservation of Credit Lines: Leasing allows customers to preserve existing credit lines with
                 suppliers
and banks.

          4.)   Tax Advantages: Leased equipment can typically be depreciated on a shorter term that more
                 closely
matches the life of equipment that is subject to obsolescence. 

As with most Government regulations, there are usually unintended consequences such as this development of alternative sources of capital for small businesses. The new rules left “hundreds of thousands of small businesses with pent-up demand for working capital to grow their businesses.”The result was that traditional bank loans to businesses in 2013 were down by 54% from the 2007 figures. The demand for capital still exists among small businesses. For companies like Square and PayPal this created an opportunity and they are filling this niche. 

With this changing landscape, it is undeniable that business owners are driven to consider new options as a source of capital to finance their business needs. If you are affected, we welcome the opportunity to answer your questions about a lease for your equipment acquisition.


Kevin F. Clune, CLFP
Clune& Company LC