There is no hard and fast rule on whether you should buy or lease equipment for your business, the answer largely depends on your situation. For business owners who have limited capital or needs equipment upgrades once in a while, then leasing equipment is the best option. On the other hand, buying equipment can be a good choice for well-established businesses and for equipment that has a long sustainable life.
Each business operates a different industry, the decision to buy or lease equipment must be related to the uniqueness of each business operation. This article will help you explore both options.
Leasing is a great way to preserve your business capital. It also provides financial flexibility to your business. However, it may cost you more in the long run.
Advantages of Leasing Equipment
- Less initial expense. The primary benefit you can get from leasing equipment is that it allows you to acquire assets without spending a lot. Equipment leasing can be obtained without necessarily affecting your cash flow, this is because leasing rarely requires a down payment.
- Tax deductibility. Another advantage is that it can reduce the net cost of your lease. Lease expenses are deductible as a business expense on the tax return.
- Flexible terms. This is a significant advantage especially if you have bad credit or in a negotiation to have a longer payment to lower the cost. Leasing is usually easier compared to loans for buying equipment.
- It allows equipment to upgrade easily. Leasing entails more freedom to lease better and more advanced equipment after the lease expires. This agreement allows businesses to pass the burden of obsolescence onto the lessor. Try Strongbox Leasing and witness these advantages affect your business.
The high initial costs of buying equipment are the main reason why business owners hesitate with this option. But few considerations like ownership and tax breaks certainly make up for it.
Advantages of Equipment Buying
- Gaining ownership of the asset is the most obvious advantage of buying business equipment. This is specifically true when the property has a long useful life and is not likely to become outdated in the future, such as agricultural machinery.
- Tax incentives. Tax law allows you to deduct fully the cost of some newly purchased assets in the first taxable year.
- Depreciation deduction. Though this might not be true to all purchased equipment, you can still receive tax savings for the majority of business equipment you buy through depreciation deductions. A type of tax deduction that you can avail.
Should You Buy or Lease?
In deciding, try to figure out the approximate net cost of that asset and factor in tax breaks and resale value. Evaluate which option is more cost-effective and consider other possibilities.