Lease or loan for your equipment?

Tax and accounting implications

The decision to buy or lease equipment depends on several strategic factors. For a growing company, it may be more advantageous to invest in growth projects rather than tying up cash in assets. Conversely, some companies may prefer to buy in order to capitalize on their long-term investments.

APARE Services assists companies in this reflection and helps them choose the best financing solution according to their goals and financial situation.

Tax implications

Loan repayments

Loan repayments are not tax-deductible. This means that the total amount repaid cannot be subtracted from taxable income.

However, the interest paid on a loan is tax-deductible. This type of deduction can help lower the overall cost of financing and improve your business’s cash flow. At APARE Services, we help our clients assess these impacts to optimize their tax structure and make smarter financial decisions.

Lease payments

In contrast, lease payments made under a leasing agreement are fully tax-deductible. Each payment can be deducted from business income, effectively reducing the company’s tax burden.

This lease deductibility represents a significant advantage of leasing over purchasing through a loan. It helps improve tax management and reduces net cash outflows.

Key accounting considerations

Depreciation and the balance sheet

If a company finances equipment through a loan, the asset will appear on the balance sheet and be depreciated over its useful life. Depreciation spreads the cost of the equipment over several years, directly affecting net income and financial ratios.

Leasing and balance sheet structure

The accounting treatment of a lease depends on its type:

• Operating lease: It does not appear on the balance sheet, which can improve a company’s financial ratios.

• Finance lease: The equipment is recorded as an asset and is treated similarly to a purchase made through financing.

Our financing brokers support businesses in analyzing these distinctions to align their financing strategy with their accounting practices and financial goals.

Thinking about financing? Here’s why you should talk to your accountant first

The choice between a lease and a business loan can have significant tax and accounting implications. That’s why it’s recommended to consult an accountant or a financing expert before making a decision.

An accountant can help you:

• Assess the tax benefits and implications
• Analyze how each option impacts your financial statements
• Optimize your financing structure to improve financial ratios
• Identify the most advantageous solution based on your business goals

The APARE Services team works closely with accounting and financing experts to offer businesses tailored solutions that reflect their fiscal and accounting realities.

Key Takeaways

Choosing between a lease and a business loan to finance equipment is a strategic decision that goes beyond simply comparing financing costs.

Before making a decision, it’s essential to assess:

• The deductibility of payments and their tax impact
• The impact on the balance sheet and accounting structure
• The benefits of an operating lease versus a finance lease
• The company’s growth objectives and cash flow management

Feel free to contact us with any questions about your project — our expertise is at your service with no hidden fees, to help you find the best solution.

A Word from Our Lawyers

This article is intended to provide general information only and does not offer legal or financial advice, nor any other professional counsel. Please consult us regarding your specific situation. The information presented is believed to be factual and up to date, but we do not guarantee its accuracy and it should not be considered an exhaustive analysis of the topics covered. Opinions expressed may change over time.