Equipment Leasing or Purchasing: Which is Right for You?
September 28, 2017 | Thomas Grabinski
Many business owners feel that owning their company’s equipment is the best investment long-term, and as a gut instinct, it is hard to fight. After all, people are taught from an early age that personal economics revolves around the accumulation of assets and the ownership of them outright. That is certainly true when one is trying to build personal wealth, but businesses are not just about accumulation—and good ones aren’t about it at all; they’re about increasing profits and doing the work that brings them.
When weighing options for a company, it’s important to look at the overall picture offered by both loans and equipment leasing, because often it is to your company’s advantage to do work with equipment that you do not have the burden of owning.
The first way that leasing can help is by offsetting your tax burden. When you take out equipment loans, the costs are not fully tax deductible as a business expense, although the depreciation on the equipment is. By contrast, when you opt for leases, you are able to deduct the entire amount of the lease from your tax overhead as a straight business expense. This often makes enough of a difference to swing the balance in favor of leasing equipment for companies that are still working hard to balance cash flow.
When you lease equipment, you also have the opportunity to negotiate for the owner to cover a portion of the maintenance and upkeep. The more they cover, the more expensive the lease tends to be. But the ability to control or eliminate the maintenance and extra supply expenses that come from maintaining your equipment can provide enough savings that, when combined with the tax benefits, even core equipment winds up being attractive to lease instead of buy.
Last but not least, there are the advantages that come from being able to upgrade easily at the end of a lease term and without a large cash outlay. When you own equipment, you need to make sure you have paid it off before replacing it; otherwise it builds a debt cycle that can be hard to break. Equipment leasing gives you an opportunity to upgrade by simply electing to lease new equipment every few years, making it ideal for hardware that is likely to age into obsolescence before it is owned free and clear.
When you add it up, leasing your company’s equipment is going to be a better deal for at least a portion of your important tools and machines.
Thomas Grabinski is founder/manager at On Call Funding. For more information, please visit www.oncallfunding.net or contact Tom via email at firstname.lastname@example.org.