One of the things on the checklist for starting a business is obtaining equipment. The question is, should you buy or lease equipment? It depends upon your situation. If you have limited capital or you use equipment that needs to be upgraded regularly, leasing might be best. On the other hand, if you’re using equipment that has a long life, buying might be a better option.
Every business is different and the decision to purchase or lease must be determined on a case-by-case basis. In this article, we’ll take a closer look at the pros and cons of buying and leasing.
Pros & Cons of Leasing Equipment
By leasing equipment and tools for your business, you preserve your capital and have some flexibility. However, this may end up costing you more in the long run than you would have spent on purchasing.
Pros for Leasing Equipment
Here are some of the pros of leasing equipment:
Less money out of pocket initially
Lease payments are business expenses, and therefore are tax-deductible
Lease terms are typically more flexible than loans to purchase equipment
Leasing equipment makes it easier to upgrade in the future
Cons for Leasing Equipment
Here are some of the cons of leasing equipment:
Costly in the long run
You don’t build equity in the equipment
Required payments for the entire term even if you no longer use the equipment.
It’s important to note that some lease companies will allow you to terminate the lease if you no longer need the equipment- but you have to pay exorbitant cancellation fees.
Pros & Cons of Buying Equipment
There are a few things that make owning equipment more appealing, such as tax breaks and ownership. However, the initial cost is high, which means it’s not an option for everyone.
Pros for Buying Equipment
Here are some of the pros of buying equipment:
You own the item, which is beneficial if the item has a long life and isn’t likely to become obsolete soon
You get tax breaks on equipment that you buy
You may be able to get a depreciation deduction
Cons for Buying Equipment
Here are some cons for buying equipment:
You pay more out of pocket at the beginning
You’re often stuck with outdated equipment, due to the low resale value
What Should You Do?
If you are trying to determine if buying or leasing equipment is better for your business, give Porter Capital Group a call to discuss your options. We can walk you through the process and help you make the decision that will be most beneficial for your business.