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Should Your Business to Buy or Lease Equipment?

 

Deciding whether to buy or lease your equipment can be a hard decision.  All types and sizes of businesses need equipment and furnishings to be competitive.  It is important to look at the pros and cons of each.  There are quite a few factors to be considered including initial capital needed, total overall costs, and typical useful life of the equipment just to name a few. 

 

Equipment Lease Advantages:

  • Business reserves capital for other expenditures
  • Low payments compared to buying
  • Upfront capital needed is low
  • Balance Sheet shows lower amount of liability
  • Satisfies short term equipment needs
  • Avoid technological obsolescence
  • Preserves credit

 

Equipment Purchase Advantages:

  • Owned equipment can be sold or traded at owners discretion
  • Business will usually pay less overall for bought equipment
  • Considered an asset on a balance sheet
  • Does not carry an early termination fee (lease may have a large fee)
  • Can be used as much as needed without penalty
  • Potential collateral for other financing needs

 

 

Leasing has become more and more popular over the last few years.  Two of the main advantages are the low up front costs and the ability to avoid obsolescence.  When a business doesn’t have a lot of cash to spend but needs to upgrade equipment a lease may be the only option.  Low up front costs make it possible for a business to keep capital available for other business needs.   Avoiding obsolescence is especially important with types of equipment that are always evolving.  It would probably make more sense to lease computer hardware that might need to be replaced in a few years and purchase office furniture which will probably be good for ten or more years.   

 

There are times when it may be better to purchase, usually you can still finance the purchase rather than spend all of the money at once.  If you are planning to keep the equipment or machinery for a long time then purchasing will most like be less expensive in the end.   Also, if complete control is important to you then a purchase would probably be the best way to go.    

 

There are also tax consequences to be considered.  Leases payments are usually fully deductible while purchases must be depreciated over time.  However, in 2009 a business owner may be able to deduct up to $250,000 immediately.  Business owners should consult an accountant to be certain of tax implications prior to making a final decision.   

 

At Business Funders we work with numerous lenders to get you the best possible financing.  We can help you determine whether a lease or a purchase or other type of financing will best suite your companies needs. 

 

 

 

 

 

 

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