Whether you’re starting up an accounting firm, a family-owned restaurant or a farm, you’re going to need equipment to get your business up and running. This will be one of the more significant financial decisions in a process filled with major money moves, and you will want to take the time necessary to consider whether buying or leasing better suits your needs.
The benefits of leasing
One of the more important factors fueling your decision to buy or to lease is the frequency with which your equipment will need to be updated. While farming and landscaping machinery may remain otherwise unchanged for long periods of time, computer equipment and other tech-based tools are prone to becoming obsolete within a matter of years. Peter Alexander, writing for Entrepreneur, notes that short-term leases on computers, printers and other assorted office tech passes the burden of obsolescence onto the company from whom you lease the equipment.
If your business is still early on in its life, extra capital might prove hard to come by. Jared Hecht, CEO and co-founder of Fundera, points out that leasing equipment does not typically require a large down payment, which can save you the trouble of scrounging up a large sum of money when funds are tight. Leasing also tends to carry a lower monthly rate than a business loan or line of credit, though you’ll wind up paying more in the long run than you would if you are able to purchase a piece of equipment outright.
Leasing is also financially beneficial because you won’t be on the hook for maintenance. If your equipment runs into a problem, the burden of fixing it is on the leasing company. Intuit Quickbooks notes that this might prove problematic as the leasing company will maintain equipment to its own specifications and may not address your issues in the timeliest fashion.
Quickbooks adds tax-friendliness to the advantages of leasing your equipment, writing that leasing is usually 100 percent tax-deductible as an operational expense under the 179 IRS Tax Code.
The benefits of buying
As with any purchase, equity is arguably the biggest advantage of buying business equipment. If the equipment in question is a lynchpin of your business and is something from which you expect to get several years of use, purchasing is the wiser of the two options. If you should determine down the line that you need a more updated version of that equipment, you can sell the equipment you own to recover some of its original cost and put that toward your next purchase.
Because you own it, you are also able to alter or improve the equipment as you see fit. While you will be financially responsible for any maintenance costs you incur, you will not be bound by a leasing company’s standards for maintenance, which Alexander notes are often more expensive than you might prefer. Because the equipment is yours, you can also prioritize its repair to get it up and operational more quickly.
If you can afford to purchase equipment outright, you won’t be required to submit paperwork detailing your business’s finances or how you intend to use it to the owner. So long as you have the means to pay for it, it is yours. Paying for your equipment without financing is also preferential if you look at long-term costs — leasing and financing will involve compounding interest payments, which means you’ll pay more than the original sticker price.
Like leasing, purchased equipment is typically 100 percent tax-deductible under the 179 IRS Tax Code. Quickbooks notes that equipment that doesn’t qualify under Section 179 may be accounted for using a depreciation deduction.
As with so many business decisions, the choice between buying and leasing comes down to your individual needs. Speak with your financial advisor before making any significant decisions, particularly if you are still early in the start-up process.