Buying vs. Leasing Business Equipment
Knowing the pros and cons of buying and leasing business equipment will help you decide which option works best for you.
Leasing equipment can be a better option for business owners who have limited capital or who need equipment that must be upgraded every few years, while purchasing equipment can be a better option for established businesses or for equipment that has a long usable life. Each business owner's situation is unique, however, and the decision to buy or lease business equipment must be made on a case-by-case basis. Here's a look at both options.
Leasing Equipment
Leasing business equipment and tools preserves capital and provides flexibility but may cost you more in the long run.
Advantages of Leasing Equipment
The primary advantage of leasing business equipment is that it allows you to acquire assets with minimal initial expenditures. Because equipment leases rarely require a down payment, you can obtain the goods you need without significantly affecting your cash flow.
Another financial benefit of leasing equipment is that your lease payments can usually be deducted as business expenses on your tax return, reducing the net cost of your lease. In addition, leases are usually easier to obtain and have more flexible terms than loans for buying equipment. This can be a significant advantage if you have bad credit or need to negotiate a longer payment plan to lower your costs.
Leasing also allows businesses to address the problem of obsolescence. If you use your lease to attain items that are subject to becoming technologically outdated in a short period of time, such as computers or other high-tech equipment, a lease passes the burden of obsolescence onto the lessor, as you are free to lease new, higher-end equipment after your lease expires.
Disadvantages of Leasing Equipment
Leasing business equipment has two main disadvantages: overall cost and lack of ownership. With regard to cost, leasing an item is almost always more expensive than purchasing it. For example, a 3-year lease on a computer worth $4,000, at a standard rate of $40/month per $1,000, will cost you a total of $5,760. If you had bought it outright, you would have paid only $4,000. In addition to the higher cost, you will have built up no equity in the computer. Unless the computer has become obsolete by the end of the lease, this lack of ownership is a significant disadvantage.
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