There is so much information out there on whether small business owners should buy or lease their businesses equipment. The jury is out on this decision as each situation will vary greatly. Every small business requires different equipment and each piece of equipment will need to be looked at for its own special circumstances to determine whether leasing or purchasing is the better deal for your company.
If you are purchasing your equipment outright you will have to make sure the cash you have on hand is able to be tied up in equipment or if an equipment loan is your next step. An equipment loan will add another dimension to the decision because you will now need to account for the loan terms and the cost associated with that. This will alter the decision to lease or buy in some situations.
As a small business owner it is important to weigh the advantages and disadvantages of both leasing equipment and purchasing equipment. In general people look at leasing as a way to safeguard capital and provide more flexibility but may cost more over the long term. The cost however may be minor in regards to loss if you weigh in the advances in technology the equipment will have in the future. Computers and technical equipment fall into line with this thinking. Businesses look at the purchase of equipment in regards to the tax benefits and the value of ownership. However because purchasing equipment means taking out an equipment loan it is not for all businesses.
Advantages and Disadvantages of Leasing Equipment versus Buying Equipment
Let me start by stating that the assumption is that the equipment being purchased is being bought outright and an equipment loan is not in this equation. Loans add an entirely new dimension to small business ventures and equipment purchases.
1) Initial Expense: Obviously with leasing you are able to get more assets for business startup with minimal outlay. Leasing often only requires a small down payment which will leave capital available for other areas. However, down the road when you add up the initial deposit and monthly lease fee you may have been able to purchase the equipment twice over at the end of the lease agreement. Purchasing requires a large amount of capital out of pocket this can be a real disadvantage to owners with little money who are looking into business ownership.
2) Taxes: With leasing you can deduct the expense off of your taxes however with purchasing you get incentives some purchases and only depreciate others. Check with your accountant to decide which situation is the best for your needs as far as your taxes go.
3) Upgrading: It is obviously easier to upgrade new equipment every few years with a lease. Purchasing new equipment every few years would require the outlay of a lot of capital. You will need to determine if the purchase will be one that requires that your business keep up with trendy new technology. You will have to decide if the equipment is something that will become obsolete, such as computers or if it is something where age is not really an issue like a stove.
4) Ownership: This obviously does not happen with leasing. You never outright own the equipment. It is truly never yours to do with as you wish.
5) Obligation: If you are leasing equipment and decide being a small business owner is not for you the obligation to pay for the equipment is still there. However, if you purchased it you may resell it hoping to recoup some lost capital.
It is in the best interest of a small business owner to figure out the net cost associated with the purchase of equipment for your business. Once you determine the cost effectiveness of leasing or buying you will want to review the items that aren’t as easily laid out in black and white. These gray areas will consist of the longevity of the equipment and its technology. Along with the whether the equipment is deemed to be necessary for the long haul of the business.