Leasing vs. Buying: What Makes Sense for Your Business?

You don’t need to be a construction company that uses heavy equipment or a manufacturer who needs machine tools to take advantage of equipment leasing or an equipment loan. Almost any equipment required to do business can qualify—including computers or even a pizza oven. Think of equipment with a high dollar value that is considered a “hard asset.” By hard asset I mean something physical that can be replace or traded but isn’t permanently attached to your place of business. For example a crane would meet this criteria, but a new training program would not.

Here are five things to consider when comparing leasing vs. buying (or financing):

1. Does this type of equipment have a relatively short lifecycle?

For example, a new computer system becomes out of date relatively quickly and obsolete in just a few short years. A lease makes it possible to stay up to date at a predictable monthly cost. A lease might also make it possible to afford equipment that might otherwise be too expensive to purchase outright.

2. Can your cash flow support the monthly payments?

This applies to both financing as well as leasing (although lease payments are often lower than loan payments). When considering lease terms, make sure the term length does don’t extend the lease beyond the need for the equipment. If you purchase equipment, it can be sold when it is no longer needed. If the lease term extends beyond the length of time you need the equipment, you could be making payments and storing equipment you don’t really need—making it more costly.

3. Is the equipment you need unique or custom?

Leasing companies frown on customizing or modifying leased equipment to fit specific application requirements. This isn’t true of equipment you purchase and finance.

4. Have you considered depreciation and tax consequences?

Purchasing equipment offers some tax and depreciation benefits that don’t apply to a lease (you should consult your account to determine what those might be for your company).

5. What does your business and personal credit profile look like?

Depending on your profile, some options might be more available than others. A traditional loan to purchase equipment from a bank will likely carry with it a higher credit standard than a leasing company or online lender.

Whether you opt to lease or buy, make sure your business can support the added financing costs and the numbers make sense. Additionally, many leases will allow you to purchase the equipment at a discount at the end of the lease term—some leases even include a $1.00 buyout. Make sure you talk to the lessor to make sure you understand whether or not this is something included in your lease.

Today there are more options than ever to help you acquire the equipment you need to do business—leasing equipment is just one of them.

Click HERE to learn more about a loan for purchasing equipment.