Buying and leasing are two completely different methods of acquiring the resources you need for your business. There’s no surefire way of telling you exactly which direction you should go, as each business is different and has different end goals. If you need equipment that should be upgraded every few years, for example, leasing would be in your best interest. On the other hand, if you need long-lasting and durable equipment, buying would be your best bet.
So what exactly should you be looking for when comparing buying and leasing? Let’s take a look at some of the advantages and disadvantages of both paths.
Pros: The most appealing part of leasing business equipment is that the initial expense of the equipment is smaller than buying the equipment. As there’s rarely a downpayment for these leases, you’re likely to save money if you’re tight on capital rather than outright buying it. This can be considered a business expense, so by leasing your equipment, your payments can be deducted from your taxes. The terms of these leases are usually rather flexible, which will especially help if you have bad credit or are tight on cash, and if you need to upgrade your equipment frequently, you can easily do so once your contract ends.
Cons: Though the initial expense may be low, the overall cost you pay toward your lease will exceed what you would have paid if you’d bought the equipment at the beginning. You don’t own the equipment, which can put you at a serious disadvantage unless the equipment becomes obsolete by the end of the lease, and even if you have no use for the equipment anymore, you still have to pay over the entire lease term. Some companies may allow cancelations, but that usually comes with a large termination fee.
Pros: Once you buy something, it’s yours. If what you’re buying isn’t likely to become outdated and will have a long lifespan, having full ownership of the equipment is a huge plus. Not only that, but buying your equipment will let you fully deduce the cost of some newly-purchased assets in your first year, thanks to Section 179 of the Internal Revenue Code. If your equipment isn’t eligible for that, you can still receive tax savings via depreciation deductions.
Cons: Unlike leasing your equipment, the initial expense will be much higher if you buy it outright rather than leasing it. For those who are tight on cash, this alone makes buying equipment impossible, as they can’t afford the cost. They could borrow money, but that would require a downpayment and affect your line of credit. Additionally, equipment that may be high-end today could end up severely outdated in a few years, which would lead to the purchase of more expensive equipment to keep up with the technological advancements. For some, this is fine and reasonable, but for others, the overall cost isn’t practical in the long run.