The equipment rental market has grown 4.1% in 2022, which means that more and more businesses are looking to lease rather than buy equipment.
But what about buying equipment? There are actually pros and cons to both.
Keep reading to learn more about whether leasing vs. buying is best for your business.
When you lease equipment, you’re basically borrowing it with the intention of giving it back when the contract is up.
For example, you can lease ice makers for a year or two, and when you don’t need them anymore, you can give them back. This gives you flexibility and access to machines you won’t need forever.
One of the leasing equipment benefits includes having lower costs in the beginning. You can use an asset with only a down payment and some monthly fees.
This can be a great way to still get the equipment without affecting your cash flow. The amount of money you pay will depend on how long your lease is for.
It’s also a great tax-deductible for your tax return at the end of the year. By doing this, you’ll decrease the net cost of your lease, even more, saving more money.
Most of the leasing companies also allow you to upgrade your equipment if you need something newer. For example, if you’re leasing out computers, you can get a new one without having to burden the lessor.
Make sure that you have an upgrades option in your contract before you sign though.
Most leases do have flexible terms, especially when you compare it to buying the equipment. This can be a good advantage if you have bad credit and can’t afford a loan.
It also means that you could negotiate a payment plan that lasts longer in order to reduce your monthly payment. Having this flexibility is perfect for small businesses that don’t have a lot of cash flow yet.
However, there are still disadvantages to leasing. In the long run, leasing is almost always more expensive than actually buying the equipment outright.
For example, if you have a three-year lease on a computer that is $1,000, and you have to pay $50 a month to lease it, you’ll end up paying $1,800 total for the computer.
You also won’t own the computer, so you don’t have any equity in the equipment. If the equipment is obsolete at the end of the lease, it won’t matter as much – but if it isn’t, then you’ll be at a disadvantage.
You’ll also have to pay for the entire lease term, even if you end up not using the equipment for that long. Some leases will give you the option to cancel, but you should read your contract carefully.
Even if they do let you cancel, you may still have to pay termination fees.
Buying equipment is when you will put all your cash up front and take ownership of the equipment.
Some businesses will take out a loan and put some money down, like you would with buying a car. Some of them just put all the money down upfront.
If you have a loan, check the requirements and terms of it. When you’re done with the term, you’ll own the equipment and you can do whatever you want with it after that.
When you finish paying your loan, you can do whatever you want with the machine. If you don’t use it anymore or want to upgrade, you can even sell it or rent it out yourself.
If it’s still in good condition, you may even want to keep it for yourself.
Like with leasing equipment, there are also tax deductions. You can deduct the full price of the equipment in the year you bought it. This will reduce your taxable income.
There is also a bonus depreciation that you can claim as well.
Even if you don’t have the money to pay for the equipment upfront, you can still get a loan. This is similar to a lease, except you’ll own the equipment when your loan is done.
If you don’t qualify for an equipment loan, there are others that you can apply for. You could try invoice financing, merchant cash advance loans, or even a cash flow loan.
When buying the equipment there are still some disadvantages. For example, you might have a higher initial cost when you compare it to the lower monthly costs of leasing.
It could be difficult to pay for this equipment all at once, and you might have no choice but to lease. You may also not qualify for a loan, which could make it difficult to purchase the equipment.
You’ll also want to make sure that the equipment isn’t going to be outdated shortly after you purchase it. Because then you’re stuck with it, and you’ll have to decide if you want to store it somewhere or sell it.
You’re also responsible for it if it breaks. You’ll have to pay for all the maintenance costs, and sometimes it isn’t an easy fix.
If the expense to fix it is too much for you to afford, you may have been better off leasing it.
Discover More About Leasing vs. Buying
These are only a few factors to consider when deciding between leasing vs. buying, but there are many other factors to consider as well.
Deciding whether to buy or lease equipment is just one decision to make as a business owner. We know that running your business can be difficult at times, which is why we’re here to help you out.
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