rental vs. bank financing
“Firms now lease everything but time.” - U.S. News & World Report
I Am Going To Use My Bank Financing!
We get this reasoning sometimes, when we attempt to compete on a financing transaction. Usually, people who go to their bank as they are interest rate shoppers, looking for the best finance rate. They ignore all other aspects because the idea of doing business with their bank gives them a false sense of security and fairness. The concept is that the banker is your friend. Because many people have accounts at the same bank for many years, and the bank has always handled their money and opened a small line of credit to help them in the everyday life, they reason that the banker is thinking about them and really cares. Many people think that the interest rates are quite low compared to other banks’ lending rates. Because the bank keeps things fairly simple, people feel secure.
What Is Wrong With This Picture?
There are quite a lot of things wrong here! Banks tend to merge lately. Did you notice? We did! We also observed the turnovers that appear as a result of these merges. This means that your good friend the banker might not be your banker anymore in a few days, weeks, months. Since relationships are very important when it comes to borrowing, what will you do when instead of your usual banker you find a complete stranger? Moreover, banks have a pleasure in delaying everything. There is a lot of unnecessary paperwork and red tape at a bank, which is probably the best example to illustrate the difference between salaried help (bank employee) and commissioned help (the rental industry).
The table below clearly illustrates the differences between using your bank for finance and using a rental company such as Spartan. All of these aspects need to be taken into consideration when deciding how to acquire your business’ equipment.
| Subjects | Bank | Rental |
| Revolving Loan Basis | Banks have always preferred to classify a loan as a “Revolving” loan. This gives them the advantage of being able to cancel the loan on a yearly basis. This leads to annual Financial Statements submissions. Every Financial Statement submitted takes time for the bank to review and approve. | Rental mean FIXED long term financing. There is no need for annual Financial Statements and lost time. |
| Soft Costs – 100% financing | Soft costs are things like logistics, installation, training, software, etc. Your banker will most probably not finance these integral parts of your equipment financing need. Bankers are more preoccupied about their exposure and risk than in the practical funding of your needs. | Rental means 100% financing. It covers all the costs, including soft costs. |
| Deposit | Bank finance usually requires between 10% and 25% down before you can get your equipment financed. Although your practical business needs are to retain the working capital, bankers are gain concerned by their exposure and risks. | On the other hand, Rental means 100% financing. No money down is required. This allows you better control over your cash flow |
| Lending Limits (exposure) | The bank always draws a line to the borrowing limit of your company, restricting future borrowing. Very unpleasant, but true. | With rental services, there are a lot more options available for your company. |
| Credit Review Process | We all know how long it could take for a bank to finish its bank credit review process. And there are always new problems arising, causing further delays. | When working with Rental, the situation changes drastically. Rental often has a 48 hour approval cycle. No more lost time! |
| Tax Write Off | Basically, bank financing makes you the owner of the equipment. This means that your only tax advantage is depreciation and loan interest. | Rental payments are deductible and may be a form of accelerated depreciation, depending upon structure |
