Equipment Leasing: Weighing the Pros and Cons
by NicoleD, Former Moderator
- Created: August 26, 2010, 11:02 am
- Updated: January 9, 2013, 9:20 am
Most business owners work to save as much money as possible during the startup of their business. While it may be easy to do without certain luxuries, there are some unavoidable costs that have to be paid one way or another. Acquiring the equipment necessary to run your business is one of those costs. Although leasing is not right for everyone, it is a good alternative to buying equipment, and in some situations it can be just what your business needs to succeed.
Why should I consider leasing my equipment?
Pro: Leasing allows businesses to get the equipment they need without having to pay a full cost upfront. By leasing your equipment, you will endure less initial costs than if you were to make full purchases but still get the products you need.
Con: Often times, leasing can end up costing more money in the long run. With a deposit, your monthly payments, and interest, you may end up spending $5,500 on a product that originally cost $4000.
Are there tax benefits or areas to save money through leasing equipment?
Pro: The full cost of leasing equipment is generally deductable from taxable income.
Pro: Leases lasting 5 years (sometimes 7) allow for the cost of your assets to be claimed as capital allowances.
Con: Capital allowances cannot be claimed for assets on leases that are less than 5 (sometimes 7) years.
For more information on the tax advantages and disadvantages of leasing equipment, review the IRS Guidelines.
Will my finances be easy to manage while I lease equipment?
Pro: Making monthly payments over time allows you to budget your funds and limit unexpected expenditures.
Con: Lease agreements can be intricate and complex, sometimes making them more complicated to manage than an outright sale.
Will I receive any perks in my lease that I wouldn't receive when I buy?
Pro: Leasing companies often take responsibility for the maintenance of their leased equipment. Knowing that these problems will be taken care may take a large burden off of your business. Having your leasing company take responsibility for the upkeep can also save you money if they receive a discounted rate on maintenance fees such as replacement parts and labor costs.
Con: Although leasing agreements can come with some perks, they can also be rigid and unbreakable, tying businesses to them for many years. In some cases, businesses will be forced to continue making payments for equipment even if they are no longer using it.
Will I be able to access the same equipment when leasing?
Pro: Often times, leasing allows businesses to have access to a higher standards of equipment than the business could afford if buying it outright. Making smaller monthly payments can help a business obtain a product that they would not generally be able to afford.
Pro: Leasing makes upgrading equipment easy. Because technology is constantly evolving, your company may want to use a new model after several years. Rather than having to worry about getting rid of your current model and purchasing a new one, you don't need to worry about sales.
Con: Unfortunately, with leasing you are always at the mercy of your leasing company. Because you don't actually own your equipment, subject to following their guidelines and susceptible to reposition upon their request.
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