Leasing vs. Buying Business Equipment – Business owners frequently wonder whether they should buy or lease equipment when it comes to acquiring office supplies, technology, or any other equipment they use to run their company. Which choice is better in the long run?
In reality, there are advantages and disadvantages to both buying and leasing equipment. You must decide what is more important to you: A reduced monthly payment or consistent cash flow? Possessing a future-saleable asset on your balance sheet? Being able to sell old gear and purchase the newest technology? Let’s help you make a smarter decision. First things first, the basics.
What Is Equipment Leasing?
Equipment leasing means you get the equipment with a limited time to return. When leasing equipment, you pay interest and fees, which are often included in the monthly payment, much as when taking out a company loan. There can be additional costs for insurance, upkeep, and repairs.
When the lease time is up, the equipment is not yours to retain with an equipment lease. You can either extend the lease or purchase the equipment after the first term has expired. Follow this link to discover the best equipment financing companies to help you along the way.
In the long run, equipment leasing can be significantly more expensive than outright purchases, but for cash-strapped small company owners, it’s a quick way to get the equipment they need.
What Is Equipment Buying?
When you purchase equipment, you become the owner of that item. The cost of buying the company equipment might be high, despite the fact that it may be enticing.
You might need to pay a specific sum of money up in advance, depending on what you’re buying and how you’re paying for it (a loan, for example). Additionally, the conditions of your loan may call for monthly payments and/or interest accrued.
You immediately become the owner of the assets if you pay for your equipment in full with cash. However, this also implies that you’ll have less money on hand to pay for other expenses.
Pros and Cons of Leasing Equipment
Here are the advantages and disadvantages of leasing equipment.
Pros:
- Lower starting cost
- Flexible conditions
- Tax deductible
- Upgrading equipment is easier
- Maintenance is free
- Can try out equipment before leasing it
- Accessible even if you don’t have a strong credit
Cons:
- The overall cost may be higher
- You do not own it
- Payment obligation throughout the full lease period
- Termination cost if the lease is broken
- Depreciation is not deducted from taxes
- Operations leases could show as a liability on your balance sheet
Pros and Cons of Buying Equipment
Here are the advantages and disadvantages of buying equipment.
Pros:
- The equipment is yours forever
- Tax deductions for purchased equipment
- Usually, the lifetime costs are less expensive
- It appears on your balance sheet as an asset
- You can utilize the equipment at no cost
- After use, you can sell the equipment
Cons:
- Higher initial expense
- You could accumulate long-term debt
- Maintenance costs
- You will have depreciated equipment
- Equipment cannot always be tested before purchase
Should You Buy or Lease?
Before deciding to buy or lease equipment for your business, there are several things to take into account. After weighing the advantages and disadvantages of purchasing vs. leasing company equipment, consider the following questions.
What Is The Equipment For?
Consider the equipment that you wish to buy or lease. How much time will it take? In a few years, will you have to replace it? Consider buying the equipment if you believe it will be reliable and durable for many years.
On the other hand, you can think about leasing it if you believe the equipment will fast become outdated.
How Much Capital Do You Have?
Your choice of buying vs. leasing may be influenced by the quantity of money your company has. Purchasing could be the best course of action for your company if you have extra cash on hand and a healthy cash flow. You won’t have to worry about finance or leasing arrangements as a result.
On the other hand, it is usually preferable to lease the equipment if you don’t have a lot of additional cash on hand (at least for the time being). Leasing enables you to save your cash in case you need it for other purposes (e.g., emergency repairs).
Do You Want To Manage Equipment Upkeep?
You often don’t have to worry about taking care of maintenance and repairs yourself when leasing equipment. Instead, the business from whom you are renting the equipment often covers them.
However, once you acquire a piece of equipment, you are in charge of all repairs, maintenance, and related expenses. Therefore, before making a purchase decision, consider if you will be able to afford the equipment’s maintenance expenditures.
Do You Choose Profitability Or Growth?
You must decide if you want to concentrate on business expansion or profit when deciding between leasing and buying. If you want to expand, you should keep as much of your own money as you can and use leasing.
In turn, the best course of action may be to invest in equipment if you’re looking to make earnings quickly.
The Bottom Line
Lower payments and avoiding owning a piece of equipment that is out of date are just two of the many excellent financial advantages of leasing. Buying, however, can turn out to be more cost-effective in the long term and provide you with an asset you can eventually sell.
Both leasing and buying equipment are excellent options, so what you opt to go for depends solely on your needs.
