BANK LOAN VS. PROVIDENCE CAPITAL LEASE
Points Against Bank:
- Often require compensating account balances (increase real rate).
- Often have restrictive covenants (hampers management strategy).
- Require large down payment (reduces leverage of client) that comes out of current assets.
- An annual clean up period may be required.(i.e. once a year banks require customer to pay down all loans.)
- Rates are generally floating and can jump up and down throughout the term.
- Often requires blanket liens on all assets, which hampers management leverage.
- Banks may call the note at any time.
- Decreases available credit, going back to an operating loan a bank may deny request based on total exposure.
- Can only expense interest and depreciation, therefore total out of pocket expenses are greater as depreciation schedules are generally 7-10 years.
Points for Providence Capital Lease:
- 12 to 36 month lease terms which can create better cash flow.
- No compensating balances.
- No documentation and restrictive covenants creating greater flexibility.
- 100% financing
- No points
- Fixed rates.
- Secure only equipment to be financed, no blanket liens.
- Lease terms locked in, can not ever call lease payable and no clean up period.
- Competitive price, especially once factors such as tax reductions, compensating balances, down payment, loan fees and annual clean up are considered.
- Increase credit availability - an additional credit line saves bank lines for operating purposes.
- Expense total payment with tax lease. Generally 100% of a lease payment can be expensed. This enables quicker recovery of investment especially for longer life leases.
- Soft costs are covered. These soft costs can include training, shipping, installation and computer software. This helps current cash flow and maintains ratios.