Equipment Leasing vs. Financing: How to Decide
When purchasing costly office electronics, heavy machinery or lab equipment, most business owners get the dilemma of whether to lease or purchase the items you need. Buying can be the most viable option, but it reduces your cash-flow. Leasing will require less money upfront; however, you will not have full ownership of the item. This post will highlight the pros and cons of purchasing or equipment leasing to help you when making your decision.
You will own the equipment fully when you buy it, and you can make the necessary alterations. You will also maintain and fix issues promptly rather than seeking permission to do so. Moreover, you can sell the item after using it to recover part of the costs. What’s more, purchasing is easier than leasing since there are no contracts or agreements. Buying is an excellent option for small pieces of equipment that offer easy storage and long-life equipment. Additionally, you get full control over what you want regarding the brand and so on.
Equipment get upgrades regularly and your purchased equipment may become outdated. This will reduce its resale value and makes it hard to find a buyer. Moreover, buying reduces your working capital, and you cannot return the item after purchase. Additionally, you are liable for maintenance costs that may further fleece your working capital.
Leasing is a 100 percent tax-deductible for costs up to $500000, and you can also enjoy using the latest technology without fear of the technology becoming obsolete. Leasing also offers low upfront fees, which are great if you are concerned about low cash flow. Moreover, maintenance costs are the responsibility of the leasing firm. What’s more, leasing enables flexibility as well as options regarding the kind of equipment you receive.
When you lease, you only rent the equipment, which is more costly in the long run than buying. Even when you purchase the item at the end of the leasing period, you will still pay more than if you had bought the equipment. Additionally, leasing comes with commitment. Even when you close business or purchase new equipment, you will still have to comply with the leasing terms. Although some lessors allow the sale of equipment or transferring the less to a third-party, you will have to make some legwork.
Are tax incentives carrying more weight than purchasing equipment? Do you enough capital to cover your business operations? Consider your financial situation before leasing or buying equipment. Read the above tips to decide the right option for your business.