Business Equipment: Leasing vs. Buying

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Hands with puzzle pieces and the words Buy & Lease - Business Equipment Leasing vs Buying
Ruth Albertson
Ruth Albertson
October 2, 2020
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Category:
Accounting & Finance

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UPDATED:
October 14, 2020

Every small business eventually needs new equipment. Whether you need the latest technology or machinery for manufacturing or packaging, you will want to consider the benefits of leasing vs. buying equipment before making a decision. Although both have some obvious advantages and disadvantages, you will most likely find that one is the clear winner for your business based on your overall cash flow and annual tax requirements. Check out some of the pros and cons of each as you make your decision.

Benefits of Leasing Equipment

Equipment Leasing and Financing Form

Are you wondering how to stay innovative and keep your small business current? You may just find that leasing new equipment or machinery from a reputable leasing company will help you do just that, eliminating large upfront cash outlays so you can get the latest equipment to help your business grow.

Upside of Leasing

1. Lower initial cost

If you do not have the money to buy equipment outright, leasing is a more affordable choice, especially for costly equipment.

2. Tax deduction

You should be able to deduct the entire monthly lease payment on your taxes.

3. Readily available equipment upgrades

Depending on your lease, you may be able to upgrade your equipment when needed, reducing the chance that you will be stuck with obsolete equipment.

4. Easier equipment maintenance

Many equipment finance plans cover the cost of maintenance for you, allowing you to enjoy modern equipment without high repair costs.

Downside of Leasing

While leasing comes with many advantages, you will also need to consider the downsides of this choice if you hope to make a well-rounded decision.

1. Increased overall cost

When you consider how much you will be paying monthly over the length of the lease, you will find that your new equipment ultimately costs you more than buying it outright would.

2. Difficult lease terms

In some cases, unclear or harsh lease terms will leave you with obsolete equipment, little maintenance support, and no way to get out of the lease.

3. No equity

Because you do not own the equipment, you are not building equity in your business.

Buying equipment - money and price list

Benefits of Buying Equipment

In some instances, buying equipment for your business may end up being the better solution, particularly if you have cash readily available. Here are a few benefits to this choice.

Upside of Buying

1. Tax benefits

According to Section 179 of the IRS’s tax code, you can deduct the full cost of your new equipment as an ordinary and necessary business expense. Although there are deduction limits, you should check with your accounting professional for guidance.

2. Depreciation deduction

You may additionally be able to claim tax deductions from equipment depreciation in future years.

3. Ability to modify or upgrade equipment when needed

Because you have complete control over your equipment, you can decide when you want to upgrade it, how you want to improve it, and when you want to sell it.

Downside of Buying

Much like leasing, buying equipment for your business also comes with several disadvantages, and you may find that these downsides are enough to make you choose lease payments over full-cost purchases.

1. Expensive

Depending on the equipment’s price or how much gear you need, you may find that you simply cannot afford to buy it outright.

2. Possible outdated equipment

Because of limited resources, you may not be able to afford to upgrade your purchased equipment. You will not have the advantage of automatic upgrades as you would with equipment leased from another company.

3. Increased expense with maintenance

You will also be responsible for all maintenance costs on the equipment you own.

What Is Best for Your Small Business?

Man standing in between Pros and Cons

Ultimately, only you will be able to make the final decision as to whether leasing or buying is right for your business. While you can now clearly see the benefits of leasing vs. buying equipment, you may determine that one or the other better meets your clients’ needs or customers along with your employees. Ask yourself some of the following questions to assess the pros and cons of each for your business.

-Which option can you afford?

-Which option offers the best tax benefits?

-How well does the equipment retain its value?

-What are the terms of the lease? (e.g., length, interest rate, prepayment penalties, lease buyout, etc.)

-What will the monthly payments be?

If you need more help in determining what would be best for your small business or are simply looking for innovative ways to grow your business, turn to E-Marketing Associates. Since 1999, we have helped small businesses make more sales and improve their online presence with software and services to help them compete and thrive.

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