For many growing companies, new pieces of equipment can represent not only significant costs, but significant opportunities. Certain pieces of equipment offer not only increased capacity or efficiency, but sometimes even entirely new lines of business. So it’s important that a company understand the differences between leasing and buying equipment, and the advantages that both can provide.
The decision between leasing a piece of equipment versus taking out a loan to buy the piece outright is worth taking some time to consider. The right answer is going to vary for each company depending on a number of factors. Here’s five different factors to consider before deciding.
What’s more important for tax purposes?
There’s substantial differences in leasing versus buying as it pertains to your taxes. Most lease payments are counted as an expense, and therefore reduce your tax burden. This should be factored into the cost of the lease as well.
When buying equipment, you are also allowed certain depreciation deductions, depending on the cost and type of equipment. Make sure to research what the differences will be for your organization.
When will the equipment be obsolete?
Depending on what you’re looking to acquire, leasing may be more well-suited to your needs. If the equipment being considered is something that will be significantly improved in five years, it’s worth asking if ownership is important.
However, if the equipment is unlikely to improve much over the next five years, you may be better served by purchasing. This way you can continue to get value from the equipment even after it’s paid off, in addition to the benefits of full ownership.
What’s your companies current financial priorities? Are there other things that are more important to purchase?
Even if a company has the ability to take out a loan for equipment, there are still instances where leasing can make more sense. It depends on financial priorities.
Oftentimes a company may choose to lease instead of buy because they may have other things they’ll need to spend on. This can be hiring needs, additional marketing promotions, or just other equipment. In these instances, it may make sense to go with leasing for the lower upfront costs so that there is additional leeway to spend in other areas.
However, if a company isn’t planning on additional spending in other areas, taking out a loan for the purchase of equipment may be the more attractive option.
Do you want the option to purchase at the end of the lease?
Most banks (including the Business Bank of Texas) will work with clients to create a provision in lease contracts for purchase of equipment at the end of the agreement. This can be determined upfront so that there’s a buyout clause in the lease agreement.
If you’re looking into leasing or purchasing equipment, the Business Bank of Texas can help work with you to evaluate what makes sense for your business. We’ll give you honest, straightforward advice, and promise a quick turnaround for your financing decision.
If that’s something you’d like to learn more about, please don’t hesitate to reach out. Sign up here to speak with a loan officer to learn more about your options.