As a business owner, there’s a good chance you require certain equipment, such as machinery, computers or vehicles, to run your business. Beyond determining what equipment is needed to run your business, you also need to consider how that equipment will be paid for. Regardless of whether you decide to purchase or lease business equipment, you must be aware of both the pros and cons of each side.
As you narrow down your options on what sort of equipment you need, you may start thinking about leasing or purchasing. There are definitely pros and cons to both options. Depending on your situation, purchasing or leasing equipment for your business can impact your maintenance expenses, access to tax deductions, and much more. Additionally, you have to keep in mind that each business is unique, and the decision to purchase or lease should be made on a case-by-case basis.
Let’s take a look at some of the advantages and disadvantages of leasing .
Advantages of Leasing Business Equipment
When you lease equipment, payments made towards it can be deducted as business expenses, rather than long-term debt on your tax return. This in turn reduces the net cost of your lease. It’s always a good idea to speak to your accountant about taxes before making a decision.
Lower upfront expenses:
Purchasing equipment requires a big chunk of capital. This is why leasing can prove advantageous to many business owners, as the equipment can be leased with a minimal initial payment. This way you can still obtain the equipment you need without seriously affecting your cash flow.
Sometimes, having the latest equipment is beneficial for your business. That’s why it’s a good idea to lease, as equipment you buy may be highly-advanced at the time of purchase, but can become quickly outdated within a short period of time. Ultimately, leasing affords you the freedom to obtain higher-end equipment after your other lease expires.
Disadvantages of Leasing Business Equipment
Higher overall cost:
If you do the math, you’ll realize that equipment leasing is more expensive than purchasing. This is because leasing companies don’t use equipment for the duration of its lifespan, so they increase the fees to regain the cost.
Not owning equipment means not building equity in it. Unfortunately, you won’t have the ability to resell equipment and recover costs if need be.
Your main obligation is to make payments for the entire lease period, even if you stop using the equipment. Some leases provide you the option to cancel the lease if it’s no longer necessary for your business, but large termination fees always apply.
Advantages of Purchasing Business Equipment
It’s simple, you will own the equipment! It’s a huge bonus for your business if the equipment has a long useful life and won’t become technologically outdated. Such equipment includes office furniture or farm machinery. You can also make any alterations, or fix any problems quickly. You won’t need permission to make such changes or wait for the issue to be addressed by the leasing company.
Option to sell:
You won’t have to deal with agreements and contracts. You choose what you need, pay for it, and that’s it! This is usually perfect for equipment that has a long life. You will also have complete control over your item and have the option of selling it whenever you like.
Disadvantages of Purchasing Business Equipment
High initial cost:
Instead of lower monthly payments, you will have a higher initial cost. Sometimes it’s difficult to pay for expensive equipment at one time. You have the option of borrowing from a bank, but they usually require a high percentage of the equipment’s overall value as a down payment. Lenders also use the actual equipment as collateral on your loan, so in the event you cannot repay your loan, they’ll take the equipment from you.. They may also put future restrictions on your future financial operations to make sure that you are able to repay your loan.
Even though owning equipment provides several advantages, one notable disadvantage is that the equipment might become outdated; and you’re stuck with it. This mainly applies to high-tech equipment. Then you have to decide if it’s worth the repair, if you should just store it, or reinvest in new equipment altogether. Fixing it can get very pricey, depending on what issues you encounter. The chances are you might be stuck with broken equipment that you can’t fix, return, or sell.
Before deciding whether to purchase or lease business equipment, you should consider tax deductions, revenue derived from using the equipment, how quickly the equipment becomes outdated, overall costs, and/or potential resale value. Remember to take your time and make the decision that best fits your business’ needs.
The good news is that we offer business term loans at an affordable rate to purchase necessary equipment and expand your business.