Lease or Buy? The Decision is in the Details
Even the smallest business can require a large investment in equipment.
Even the smallest business can require a large investment in equipment. If you’re growing a small business and don’t have capital to spare, leasing the equipment you need can be a viable solution. When you lease equipment, your business can benefit from greater financial flexibility simply by not having to invest thousands of dollars upfront. Other advantages include:
- Improved Cash Management. Leasing allows you to conserve working capital, maintain a predictable equipment budget and avoid costly down payments.
- Educated Equipment Decisions. You have the opportunity to evaluate equipment before purchasing it, and if you decide to purchase it later on, you can build equity through your contract.
- Tax Deductions. Leasing costs can be deducted as business expenses without requiring depreciation calculations.
- Easier Terms. Generally speaking, you can rent what you need for the specific period you need it, and pay a flat monthly rate.
Be Aware of Pitfalls
Before entering into a lease agreement, consider the following factors:
- Greater Long-Term Cost. Over the life of a lease, some businesses may pay more for equipment than if they had purchased it. Watch out for fair-market value leases with an open end.
- Unpredictable Buyout Amount. The cost of the equipment after the contract ends might stretch a budget more than anticipated.
- Securing Credit. Entrepreneurs should keep in mind that they will need to provide a personal guarantee to secure the lease.
- Contract Length. A lease ties you to equipment for a prescribed period of time, during which your business might change dramatically, leaving you to pay for equipment you no longer use.
If You Decide Leasing is the Best Option
Pay attention to the details. Conduct a cost analysis for leasing equipment versus buying it with a business loan or existing capital. Study what equipment you need and for how long. Know whether you’re responsible for repairs, support and supplies, and what your trade-in or upgrade options are. Find out whether you need a casualty insurance policy to cover damages to equipment.
As with any business decision, investigate all potential financial partners thoroughly. You’ll find some equipment providers have in-house programs while others employ lending partners. Leasing equipment can make sense for many businesses facing an expensive equipment investment. Arm yourself with information to find out if it’s the best answer your small business’ challenges.