Why is equipment leasing so disrespected by the NFIB?

When the National Federation of Independent Business (NFIB),  allows a large online lender to publish an article on their website that discourages leasing as a viable option to acquire equipment, I have to speak out. What exactly are the “advantages” of a loan over a lease, according to this “mega” online lender?  

  1. You may have lower payments and a lower total cost.
  2. You own the equipment at the end of  a loan.
  3. You can claim a Section 179 tax deduction.

We agree that it is good to calculate your total cost of a loan vs. a lease. With reported interest rates of 20% to 99% for a business loan from some online lenders, however, how can borrowing from them ever be good for a small business? Also, the total of all payments should not be the only criteria used in making the decision. There are other factors to consider, as there are differences between leasing companies, as outlined in our Total Cost Comparison.   

Secondly, the article erroneously states that an equipment lease “is exactly the same as leasing a vehicle”, in that you will not own either at the end of the term. “You pay a monthly or periodic lease fee, and at the end of the lease term, you return the equipment.”  

In reality, if you want to own the equipment at the end of the lease term, that can be accommodated by choosing a capital lease program rather than an operating lease at the start of the negotiations. Also, you will not be required to return the equipment at the end of a capital lease.    

Additionally, many leasing companies offer a finance product that gives the customer the choice to upgrade, purchase, or return the equipment at the end of the term. Owning the equipment at the end of a loan may not be the preferable goal as you may be stuck with obsolete equipment. A lease can give you more options than financing with a capital loan.  

Finally, the assertion that an outright purchase of the equipment is the only way you can obtain a Section 179 tax benefit is also misleading. If you finance your acquisition with a capital lease, it will qualify for this deduction. You can calculate the savings, but this should be verified by your tax advisor.   Other types of lease finance products also offer a shorter write-off  than a capital loan, since a lease is typically written over a shorter period of time.  

It is very disheartening that a supposed small business watchdog group is promoting and partnering with a capital loan entity, despite their questionable tactics. They used the NFIB platform to assert questionable, even false, information about a competing industry. I just wanted to set the record straight. 

It’s the “lease” we can do,

Kevin F. Clune, CLFP
Clune & Company LC