Leases and Loans the Difference between Apples and Oranges
Because leasing has such a wide definition I am specifically talking about lease purchases; where the intent is to purchase the equipment at the end of the term.
What is the difference between a Lease and Loan? This is a pretty broad topic so I will try to cover it in bite sized chunks.
Technical…
Equipment Loan: is where the Lender (the party that is providing the money) is loaning out a specific sum of money to the Buyer (the party that is purchasing the equipment), that is to be applied towards the purchase of a piece of equipment. The Buyer purchases the equipment in their name and the Lender then files a UCC or Lien on the equipment until the agreed upon payments have been made.
Equipment Lease: is essentially a rental agreement. The Lender buys the equipment on behalf of the Buyer and after the agreed upon payments have been made the Buyer then can purchase the equipment for a predetermined residual amount. (Common residuals include $1, 10% or FMV, to be covered at a later date)
Real Life…In short the difference between a Equipment Loan and a Lease is the ownership of the equipment during the course of the payment plan. Also a Lease by nature has to have some sort of residual at the end of the term.
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