I'm opening a new practice. Is a conventional loan better than a capital lease?
Q. I'm opening a new practice. Is a conventional loan better than a capital lease?
"When it comes to financing start-up leasehold improvements or working capital, I've never had good experiences with capital leases," says Tom McFerson, CPA, an accredited business valuator and a partner with Gatto McFerson in Santa Monica, Calif. "The interest rates are tough to pin down and the pre-payment penalties are usually severe. In fact, you don't always have the option of paying it off early, so you have to ride out the entire term of the lease. In the long run, the lease will cost more.
"Now, maybe you don't have much capital and the lease is your only option," he says. "But I wouldn't let the fact that it might take longer to get a loan stop you from pursuing one. It would be nice to have some other proposals to compare your lease to."