No matter what industry your business is in, you’ll need high-quality equipment to start making money and grow your brand. Unfortunately, those pieces of equipment don’t come cheap. In fact, the average business pays between $10,000 and $125,000 for equipment alone during the startup phase.
Before you can decide on the types of equipment you need, you’ll want to figure out if it’s best to lease or buy those tools.
Both options are great for small business owners, but you need to decide which will work best for your current budget. Here are a few key things to think about when deciding to lease or buy equipment for your company.
Think About Your Savings
When you make the decision to buy equipment outright, you’ll need to pay full price for the equipment you’re interested in. Though you may be able to finance the purchase with a business loan, it’s always best to pay for the equipment with cash.
Take a look at your company’s savings and your budget. If you have the option of paying for the equipment outright, it may save you money in the long-run. However, if your finances are tight and you don’t have the money you need, leasing equipment can be a better choice.
The lease allows you to pay a relatively low monthly fee for use of the equipment for a set period of time. If you end up wanting to keep the equipment after the end of your lease term, you may have the option to buy it at a lower price or renew your lease on the equipment.
If you go this route, you likely won’t need to provide a significant down payment on the equipment upfront. Keep in mind that some leasing companies may require large security or damage deposit before they will give you the equipment.
Consider the Tax Advantages
Both buying and leasing equipment gives you the opportunity to take advantage of certain tax savings.
When you buy equipment, you may be able to deduct a portion of the equipment’s depreciation value from your taxable income. You can also deduct the full purchase price of the equipment from your taxable income during the first year of ownership.
When you lease equipment for your business, you’re able to deduct the lease payments from your taxable income at the end of the year. They’re considered a regular business expense and can decrease the amount your business owes the IRS at tax time.
Keep in mind that both options provide you with distinct tax advantages. It’s up to you and your accountant to determine which option will give you the greatest savings and benefit your business most.
Decide How Often You Want to Upgrade
Once you buy business equipment, you own it. This means that you’re stuck with the equipment until you sell it. For some businesses, this makes upgrading difficult.
You won’t have the money you need to upgrade until you get rid of the old equipment.
However, when you lease equipment for your business, you’re only locked into that equipment until the end of your lease. If you want to upgrade after your lease is up, you can do so easily. Often, you’ll be able to work with the same leasing company, saving you the frustration of having to shop around. Even better, some leasing companies allow you to upgrade your equipment during the middle of your lease for a small fee.
If the equipment you’re working with goes out of date quickly or will become obsolete in a matter of months, leasing is the better choice.
Look at Your Credit Score
It’s rare for newer businesses to have high credit scores. You haven’t been around long enough to build a solid reputation and proven profit history. If you’re trying to finance the purchase of equipment with a loan, qualifying for the loan may be difficult at best.
However, when you work with a forklift rental provider or other equipment leasing company, you’ll start building your business’s credit score over time. The longer you lease your equipment, the more history you’ll create.
This can make gaining financing on future equipment purchases easier and more affordable.
Understand How Equity Impacts Your Company
Ultimately, buying equipment is an investment in your business. Once you own it, you build equity in the equipment and can keep whatever you make off the equipment if you sell it.
When you lease, you’ll never be able to build equity in the equipment. Once the lease expires, you won’t be able to sell it to offset the cost of new equipment for your company.
If you’re worried about being able to recoup your investment, buying your business equipment may be a better option.
Pay Attention to Maintenance Requirements
All the equipment your business relies on every day will eventually need maintenance. The more you use it, the more often you’ll need to schedule maintenance appointments.
When you buy equipment outright, you’ll have to cover the cost of all maintenance upfront. It’s your responsibility to schedule appointments and make sure the equipment stays in good condition for as long as possible.
When you lease business equipment, the leasing company is responsible for all maintenance and upkeep. This is partly covered by your monthly lease payments. However, you’re subject to the leasing company’s availability and maintenance budget.
If they’re booked up or don’t have the money to pay for maintenance, you’ll have to wait for your appointment. If you’re not prepared, this can leave you facing serious downtime and can hurt your company’s productivity.
Is It Better to Lease or Buy Equipment?
Making the decision to lease or buy equipment is a matter of personal preference. Before you decide, weigh the pros and cons of both options and see how they’ll impact your company.
If you’re worried about frequent upgrades or don’t have the money upfront, leasing is a great option. However, if you are financially able, buying equipment will often end up saving you money.
Looking for additional proven tips to help you streamline your business and improve your bottom line? Check out our latest posts for more.