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Leasing Business Equipment
When you start a business there are a lot of necessary items, from telephones, desks, and lamps, to heavy machinery, computers, and even dollies. So, you have the option to buy all of the business equipment needed, or lease it.
When should you do which? Well, that depends on your business. 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. For example, if you are in the business of graphic designing,you would need up to date computers with the newest versions of your software, as well as the highest technology printers, scanners, etc. So, leasing this equipment may be a financially savvy move as it means you can update your equipment every year without huge cost restraints. While purchasing equipment can be a better option for established businesses or for equipment that has a long usable life, it may not be smart for you. As every situation is unique, there is no one answer to whether or not you should lease or buy equipment.
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Let's take a look at what leasing business equipment can mean for you.
Leasing Equipment
Leasing equipment gives you a little more cash to work with, as it is not a gigantic one time investment, but may cost you a lot more in the long run. Let's review the advantages and disadvantages of leasing equipment:
Advantages of Leasing Business Equipment
- You can acquire assets with minimal initial expenditures. Believe it or not, business equipment leases rarely require a down payment, so this means that you can obtain the goods you need without significantly affecting your cash flow. For many start-ups this is a huge plus, and often is the only way they can afford to have the things they need to start bringing money in.
- Can be tax deductible, often your lease payments can be deducted as business expenses on your tax return, which for many business owners is a significant advantage, plus when you look at it as a way to pay less in taxes, the numbers make more sense, and it reduces the net cost of your lease.
- Leases are usually easier to obtain and have more flexible terms than loans for buying equipment. So, even people with less than perfect credit can get the necessary equipment to run their business. This can also be a significant advantage if you need a longer payment plan to lower your costs, as many leasing companies are willing to work with you to meet your needs.
- You no longer have the problem of obsolescence. Many companies can use leasing as a great way to get the equipment that they need that are subject to becoming technologically outdated in a short period of time, such as computers or other high-tech equipment.
Disadvantages of Leasing Equipment
- Let's be honest, leasing is pretty great if it weren't for two main disadvantages: overall cost and lack of ownership.
- Cost: Leasing an item is almost always more expensive than purchasing it. That is kind of the point, as you exchange cost for the ability to not have cash up front. However, let's look at how much the cost difference is. 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.
- Lack of Ownership: In addition to the higher cost, you will have built up no equity in the computer. So, you pay more for it than you would if you buy it, and you get nothing other than use out of it. Unless the computer has become obsolete by the end of the lease, this lack of ownership is a significant disadvantage. (Thus, leasing is best for equipment that gets out of date fast.)
- Continued Payment: A lease is a debt, and unfortunately it may weigh you down, as you have to pay for the whole lease term. You are obligated to make payments for the entire lease period even if you stop using the equipment. Though you may have an option to cancel the lease if your business changes directions and the equipment you leased is no longer necessary, there is always a large termination fee. So, be wise.
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