What Are the Pros of Leasing Business Equipment?Buyers' Training
June 12, 2013 — 1,143 views
Different industries will require different types of equipment ranging in size from big to small. While the smaller pieces of equipment are easy to purchase on a modest budget, the bigger (and usually more vital) pieces of equipment might be harder to purchase as soon as you start your business. As a result, leasing equipment is seen to be a beneficial way of doing business, and not taking as much of a hit on the profit margin that purchasing would definitely cause. However, there are reasons why purchasing is a better option in the long run. We shall explore some of the benefits and disadvantages ahead.
Buying Vs. Leasing – Which is Better?
As mentioned earlier, leasing equipment brings down your initial setup cost. However, continuing to lease the equipment for a long period of time will see you spend more on the rental costs than compared to the overall amount you would have spent on the purchase. Another advantage your firm can benefit by leasing equipment is the fact that leases for more than 5 years (7 years in some areas) can help you get tax benefits.
The only disadvantage in this light is that leases less than 5 years (or 7 years, depending on the area) do not help you with tax benefits. When it comes to budgeting your monthly expenses, leased equipment allows you to automatically budget for it, although it must be remembered that lease contracts could be quite confusing and intricate. It’s best to make sure that you have someone adept at handling leases to consult you.
Leasing equipment also has another important benefit. In many cases, leasing equipment allows you to access high-end equipment that might have been out of your reach if you wanted to purchase it outright. One of the biggest drawbacks, on the other hand, is the fact that your ability to use the machinery is always at the mercy of the individual or company that you leased it from. Within the clauses in the contract, repossession is always a serious threat and something that could severely affect your ability to meet your production targets.
Weighing the Pros
Weighing the pros and cons is an important business decision that needs to be taken when it comes to leasing equipment. As mentioned earlier, there are a number of advantages to leasing equipment – while there are also a number of complications that could arise out of the arrangement. Maintaining healthy relations with the owner or owners of the equipment is essential in order to prevent any misunderstandings from getting in the way of the business relationship.
Since you don’t really own the equipment when you lease it, it helps you to upgrade to an industry standard piece of equipment when you do have the capital to make a purchase. The fact that equipment tends to become obsolete so quickly means that you have not spent a lot of the running capital on equipment that you can use for a few years, before you have to make another purchase.
Take your time and think long and hard about whether leasing equipment or purchasing the equipment will make more sense in the grand scheme of things. At the end of the day, purchasing the equipment makes absolute sense if you have the capital to do so. Not many people will choose to lease the equipment if they have the capital to make a purchase, as it will count as an asset to the company.