Pros and Cons of Leasing vs Buying Equipment
- July 3, 2020
- Written by : REIL Capital
When running a business, having the latest equipment can give you an edge over your competitors; however, frequent investment in the newest equipment can also send you into the poorhouse. Fortunately, leasing is the best alternative for those who cannot afford to buy everything all new.
In this blog, we will go through the pros and cons of buying vs leasing equipment to help you determine what can be the right option for your business.
The Pros of Leasing
When compared to financing new equipment, leasing requires very small down payments. Sometimes you can even lease new equipment for your business without any down payment.
Unlike the financing agreement, the lease agreement can be extended. Business owners usually get the option to buy the equipment or return it at the end of the agreement.
In most equipment leasing agreements, repairs are the responsibility of the lessor.
Managing leases is straightforward.
Business owners with bad credit can opt for a lease if they need equipment for their business operations.
The Cons of Leasing
Leasing can actually be more expensive than buying equipment. If you don’t have the cash, consider financing it. Business owners should do their math with financing interest rates and leasing interest rates, especially before making any big purchases.
Business owners may fail to realize the depreciation for the equipment due to the lease structure.
Lease payments can easily outlive the equipment’s usefulness. Business owners are forced to pay all the payments or break the lease; both of these are costly.
According to the new rules of accounting, it can be a liability on your balance sheet to operating leases. This can hurt the credit report of your business.
The Pros of Buying
When you own the equipment, depreciation could lead to low tax liabilities.
Owning the equipment means that you can utilize the equipment the way you want.
Never make this misconception that old equipment is useless. Equipment that is still useful after the funding period is over is a big advantage for business owners. Sometimes even the best equipment goes useless but when you own it, you can do whatever you want to with it.
Equipment funded with a small business loan can be the only collateral for business owners with a good credit score. But that’s not the case with businesses with slightly low credit
The Cons of Buying
Sometimes loans for equipment purchases may require down payments.
Balance sheets can be full of liabilities with more loans on them. This adversely affects a business’ ability to borrow more.
Lenders may ask for something different apart from the equipment as collateral.
Buying equipment without funding may deplete capital reserves since most equipment requires a large sum of cash.
The fact that equipment often becomes outdated heavily affects its resale value when the time comes.
Now that you own it, you have to take responsibility for all the big or small repairs.
Here we conclude the pros and cons of buying or leasing equipment. Small business owners can pick any option as per their requirements after reading these points. Get an equipment loan from REIL Capital with a 100% purchase price at the lowest interest rates.