When you are starting up and running a business, there seems to be an endless number of choices to make. For instance, should you buy or lease the equipment you need to run your business? This choice can have significant impacts on your business finances and flexibility, so it is important to choose wisely. Here, we will review some of the advantages and disadvantages of buying or leasing business equipment to help you make this significant business decision.
To Buy or Lease Business Equipment?
Buying or leasing business equipment will greatly depend on your situation. Sometimes, you may want to buy equipment, but lack the funds upfront to make such a purchase. Every business is unique. To help you make this decision, here are some of the disadvantages and advantages of both leasing and buying business equipment.
When you lease your business equipment, you can save on expending business capital upfront. This means you make available the business capital for other business expenses and investments. Leasing equipment rarely requires a down payment and so you can get ahold of much-needed business equipment without throwing a wrench in your cash flow. It is also good to know that payments on lease equipment can be tax-deductible as a business expense. This helps reduce the net cost of leasing the equipment.
The flexibility leasing offers can also be attractive. Lease terms tend to have more flexible terms than those that are applicable on loans needed in order to buy equipment. It also allows you more flexibility in terms of making upgrades to your equipment. When your lease is up, you can put the money towards leasing new equipment. This can be especially important for those rapidly changing industries that involve computers and other high-tech business equipment.
On the other hand, however, leases tend to end up being more expensive on the whole. While up-front costs will be lower, you will end up expending more business funds in the long term in order to lease equipment as opposed to buying it. You also lose out on building equity in the equipment. You do not own it. You are merely leasing it. This can also be a disadvantage. While a lease may offer more flexibility than owning equipment, you are still on the hook for paying for the entire lease. You must make the payments for the entire lease period. This is true whether you still use the equipment or do not use it anymore. Some leases will give you the option of cancellation, but there are usually fees that apply in these situations.
Buying your business, on the other hand, means you own it. You are building equity in business equipment which can be a big benefit. It will save you money, in the long run, to buy your business equipment as opposed to leasing it. There are also tax benefits to buying the equipment as the Internal Revenue Code allows the full deduction of the cost of newly purchased business equipment in the first year.
Buying business equipment, however, means a greater initial expense. You may not have the business funds needed to cover the up-front cost of buying this equipment, but still, need to buy the equipment to run the business. You also risk getting tied to equipment that will eventually become obsolete. This means buying equipment may be better left to that equipment that you will be able to use for years to come.
Business Law Attorney
Do you need help with business decisions such as whether to buy or lease your business equipment? The dedicated team of business law attorneys at Jones, Gregg, Creehan & Gerace can help. Contact us today.