When making the decision to purchase or lease a particular piece of equipment, it is important to determine the net cost of the equipment first, as well as weigh your financing options whether it be an equipment lease or a loan. Both options have their pros and cons, so evaluating each side by side can be beneficial for making the right decision based on your company’s financials.
Lease: A lease can generally be defined as ‘renting’ equipment for a specified period of time along with a monthly payment including interest.
Loan: A loan is defined as a sum of money borrowed, usually for a purchase that is expected to be paid back in full along with interest.
-Allows you to obtain the equipment you need without the expensive initial cost in order to help your business preserve its cash flow, if needed for other projects.
-A lease can either be included or not included on a company’s balance sheet. If the lease is included as an expense then the lease payments reduce tax liability.
-With a lease, the terms are more flexible, especially if you have bad credit or need to adjust the payment period to be longer in order to fit into your budget.
-Since leasing equipment doesn’t bear the risk of obsolescence, it is much easier to trade in for new equipment once the lease is up, without having to worry about selling it at a lesser value than the initial purchase cost.
-Buying equipment immediately grants you ownership of that asset
-Using a loan to purchase equipment also allows tax incentives by either a section 179 deduction or a depreciation deduction for any purchased assets within the first year.
-Despite the low initial cost, leases can end up costing you more money in the long run depending on the interest rate and length of the payoff period.
- Regardless of how long you actually use the equipment, you are still required to pay out the entire lease term.
-Purchasing equipment usually requires a higher initial expense especially when loans require a down payment. This can then tie up your company lines of credit and place restrictions on any future expenses.
-Depending on the type of equipment you purchase, it may become technically obsolete or break, then you are required to pay to have it fixed or make a completely new purchase, losing your initial investment.
What types of equipment can be leased? Almost any type of equipment need can be leased, here are just a few examples of popular equipment types that are leased quite frequently:
-Furniture & Fixtures