Should you lease or buy new equipment for your business? I’m sure this is something that has crossed your mind at least once. Depending on your situation, you can make a choice. If you have a limited capital or your business is such that it requires an upgrade of equipment every few years, then leasing out the equipment would be a better choice for you. Purchasing new equipment is a good option for business owners who either have well established businesses or their equipment has a long usable life.
The decision to purchase or lease business equipment should be taken after considering the pros and cons of both the options.
The first and foremost advantage that you have of buying the business equipment is that it becomes your permanent asset; it adds to your wealth in the long run. Also, may receive some tax rebates while purchasing your own equipment. Here are some other benefits that you get from purchasing your own business equipment.
UPSIDES OF BUYING
You determine the maintenance schedule. Leasing out and maintaining the equipment according to the leasing company’s specifications can turn out to be an expensive deal. On the other hand, by purchasing your own equipment, you can have your say on the maintenance schedule and cost.
Buying is an easy process. When you plan to purchase equipment, you have the exact specifications in mind; it gets easier to go and just purchase the equipment outright. On the other hand, when you go out to lease equipment, you might not get the equipment with the specifications you had in your mind; and you have to settle with what the leasing company has. Also, leasing out equipment can turn out to be a painful task as it involves a lot of complications and paperwork. Settling on the lease terms can become difficult and in a few cases, you can also end up paying more than what you expected with hidden fees.
DOWNSIDES OF BUYING
Purchased equipment tends to become outdated quickly. Technology changes frequently and so does technical equipment. Purchased equipment get obsolete soon, and you can’t keep them or do away with them fully; so you get stuck with the outdated tools. A significant amount of money goes into upgrading or replacing these devices.
It requires hefty capital investment. Purchasing new equipment may require a large initial capital investment, which could be invested into other key processes like marketing or accounting.
Leasing out equipment not only preserves capital but also makes room for easier replacements when equipment becomes obsolete every few years. Like ‘purchasing’, ‘leasing’ has its own pros and cons.
UPSIDES OF LEASING
Leasing requires minimal initial expenditure. Unlike the ‘purchase’ option where you need to pay hefty initial amounts to obtain the equipment, leasing requires no down payment. This way you can acquire the equipment that you need easily without heavily affecting your cash flow.
Apart from gaining the benefit of less initial expenditure, you are also taken off the burden of maintaining the equipment as the same is taken care of by the leasing company.
Problem of outdated equipment can be easily handled. Technical equipment gets obsolete with time. Leasing provides you an advantage of easily replacing the outdated equipment with the latest ones at the time of lease agreement renewal. Also, if you are not happy with the services of your current vendor, you can always lease out new equipment from a different vendor, once the current lease agreement expires.
DOWNSIDES OF LEASING
Leasing can prove to be a costly option in the long run. Most of the time, your monthly payments include stealthy high interest rates. So in the long run you can actually end up paying more while leasing than if you bought the equipment outright.
Cancellation or early termination of lease agreement can be very expensive. There might be some circumstances that cause you to stop using your leased equipment. In such circumstances, you still need to make payments for equipment that you aren’t using.