Leasing equipment can be a great option for newer businesses short on cash, while buying may be better in the long run when possible. But the decision isn’t that cut and dried. You need to consider numerous other factors.
BUYING
Generally, if you have the money and a solid cash flow, buying equipment may prove less costly than leasing. It may also provide more choices, allowing you to shop around, compare prices, and get exactly what you want. In addition, owning builds equity in the equipment, so if you need to sell the equipment, you potentially recover some of your initial cost.
Consider tax benefits. For example, if you finance your purchase, you can typically deduct the interest as a business expense. For some business assets, such as automobiles, you may be able to deduct the vehicle’s depreciation. IRS Section 179 allows businesses to deduct the total purchase price of qualifying equipment purchased or financed during the year (within limits) rather than expensing it.
On the minus side, buying equipment entails higher up-front costs, ties up cash that may be better used for other expenses, and puts the responsibility for all maintenance on your business. Depending on the type of equipment, you also risk obsolescence.
LEASING
Leasing gives you easy, predictable payments spread over time and leaves the business with more cash for unexpected expenses or business opportunities. It may be a good option if you’re looking to build your credit. You also reduce obsolescence risks if your lease allows for technology updates and regular maintenance is included. As for tax benefits, payments are typically a deductible business expense.
Detractions include a total cost that usually exceeds the purchase price, no equity in the equipment, the leasing company controls maintenance, and you may have limited choices. You also may be unable to alter the lease agreement to best meet your needs.
Need some guidance? Your financial professional has experience with other businesses and can assist you, too.