There’s more than one way for your small business to get the equipment it needs to succeed. Buying and leasing are both viable options, depending on the unique factors of your enterprise and the financial considerations involved. Choosing between the two is no easy task. Here’s a look at how to choose whether to purchase or lease vital equipment for your small business.
“Understanding the pros and cons of each option is critical for success.”
Purchase or Lease Equipment: What You Need to Know
Businesses ranging from restaurants to trucking firms and construction companies all have major equipment needs. Restaurants depend on their flat-top grills, walk-in coolers, dishwashers, ice machines, ovens and many other items to safely make delicious meals. Without them, there’s no way for a restaurant to operate.
Although the type of gear is different, the same sentiment is true for construction companies. From specialized vehicles like excavators and backhoes to hand-held heavy equipment like jackhammers and pile drivers, these tools are an essential part of a construction company’s backbone.
When equipment is so vital to day-to-day operations in many industries across the national economy, it’s similarly important that small business owners find the best possible way to pay for it. Let’s consider the benefits and drawbacks of the two major options: purchasing and leasing.
Purchasing pros:
- You buy it, you own it: Once you fully purchase your equipment, it belongs to you, and no one else has an ownership stake.
- Purchasing is often less expensive overall than leasing.
- Section 179 of the U.S. tax code allows for significant tax deductions on purchases of large business assets in many, although not all, situations. Speak with your tax professional to be sure your purchase will apply.
Purchasing cons:
- High initial costs can quickly drain available capital and make it difficult for businesses without huge cash reserves to make the purchase.
- You’re ultimately responsible for the equipment as it ages and reaches the end of its useful life. It may take a lot of time and effort to sell the older equipment or otherwise dispose of it.
- For those two reasons, purchases are less flexible and require a much stronger commitment.
We help businesses get the tools they need to get the job done every day.
Leasing pros:
- The cost of the equipment is spread out over time, meaning you retain more cash on hand for the many other financial needs that come along with running a small business.
- Lease payments are often, although not always, tax deductible. Similarly, there are many situations where Section 179 of the tax code can lead to substantial deductions. To be sure about your ability to receive this valuable deduction, discuss it with your tax professional.
- The leasing company is generally responsible for maintenance and repairs related to the equipment.
- Leasing can mean more options for choosing the piece of equipment that’s a perfect fit for your business.
- You’re not responsible for selling or otherwise getting rid of the equipment once the time comes.
Leasing cons:
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- You tend to pay more overall for leased equipment than items you purchase outright.
- You only get to use the equipment for the period of the lease and have to plan around that eventuality. However, you may be presented with the option to purchase it after the lease expires.
- You have to pay out the entire lease, even if changes to your business operations mean you no longer use or benefit from the equipment.
How To Do Lease Vs Buy Analysis
Deciding between leasing and buying equipment hinges on various factors. First, consider the equipment’s lifespan and technological advancements. Leasing offers flexibility for upgrading to newer models, ideal for rapidly evolving industries. It’s important to consider the financial implications, as well. Leasing often requires lower upfront costs but may accrue higher overall expenses over time. Assess your company’s cash flow and tax situation – buying may provide tax benefits and long-term cost savings. Additionally, analyze usage patterns: frequent upgrades or specialized equipment may favor leasing, while stable needs could lean towards purchasing. Ultimately, a thorough analysis accounting for financial, operational, and strategic aspects guides the decision-making process.
When To Buy Equipment
Businesses should opt to buy equipment when they have the necessary working capital to cover upfront costs and maintenance expenses. Buying is preferable for long-term use, especially when equipment has a lifespan exceeding 10 years and doesn’t require frequent upgrades to match technological advancements. Additionally, having a predefined budget allocated for maintenance further supports the decision to purchase, ensuring stable ownership and control over assets without the constraints of lease agreements.
When To Choose Leasing
Leasing equipment is a better choice when businesses lack the budget to cover the entire cost upfront. It’s ideal for short-term needs, equipment with a lifespan under 5 years, or those requiring frequent technological upgrades for enhanced productivity. Leasing offers flexibility, allowing for easier repair and replacement arrangements. This approach enables businesses to access necessary tools without significant upfront investment, adapting to changing needs, and technological advancements more seamlessly than committing to ownership.
There are many factors to consider when deciding how your business should acquire new equipment. When you choose National Funding to secure an effective lease or equipment financing to directly purchase equipment, you have an experienced and helpful partner who has your best interests at heart. We’re here to help you secure equipment in the way that makes the most sense for your business.
