The choice to lease or purchase equipment weighs on many business owners because of its far reaching impact on long term cash flow obligations. Different businesses will benefit differently from leasing or purchasing equipment based on their individual cash flows and industries. In a simplified explanation, purchasing can save money on interest in the long run, but requires maintenance fees with age. Leasing is preferred by those who don’t have the upfront funds for a large purchase, but may eat up cash flow with additional fees.
When beginning your research into deciding whether you should lease or purchase equipment, examine these aspects of your business.
Longevity & Maintenance of Item
Those who lease their items often do so because it is so easy to upgrade their equipment. In fields that change often, especially medical, leasing new equipment until a more modern model comes out is much more beneficial than constantly purchasing and selling and a depreciated value. Other industries such as manufacturing might not have any major innovations on their equipment and be able to purchase a line to last for several decades.
Assuming the equipment does not breakdown. When purchasing, you also have to take into account that this long-term investment will need maintenance, repairs and other minor upgrades. As long as your purchase is built to last, it will be worth the investment. But if it breaks easily or is soon to be outdated, leasing will be your best bet.
Fees to Lease Or Purchase Equipment
Both leasing or purchasing equipment comes with different fees and interest. Leasing may have a higher long term cost than purchasing to offset the depreciating value for the provider once you are done. Purchasing can initially be a lower cost, but if you need financing to obtain the equipment, interest and fees may actually be more costly.
Also, lease payments can usually be deducted as business expenses on your tax return, reducing the net cost of your lease. Commercial airlines often lease jets for this reason, as well as the cash flow burden and cash flow cycles of the industry.
Long Term Financial Obligation
Cash flow is a major concern for business owners. Some merchants who could benefit from purchasing are forced to lease because they can’t take the financial hit of making a large purchase. Leasing preserves capital and provides more working capital flexibility, but depending on the contract it can be a long term commitment to pay for contracting the item.
For business owners who purchase and realize they would like a newer or different, they can sell back the item after purchasing. It will be at a lesser amount, but could still amount to less than if they leased.
Lease or Purchase Property
In addition to wonder if one should lease or purchase equipment, business owners also consider leasing or purchasing property. It is said that leasing is throwing money into a hole. In a way, yes, you are paying money for a space every month with no long term benefit. Whereas with a mortgage, you are paying off your investment into the property.
Purchasing property isn’t as easy as it seems. A business must have enough for a downpayment saved up, which strains cash flow to save up for and put down. Then once purchased, there are property taxes, mortgages, maintenance issues and various other fees that come with being a property owner that could further eat up working capital and add up to more than a lease.
Finally, companies that are growing or moving around might not be ready to commit to a space or spend their cash on property when other aspects need money. If it’s not the right time to buy and invest, for you or the real estate market, don’t rush into. It’s a long term obligation with long-lasting effects.
Where Can You Get Help to Lease or Purchase Equipment?
Having enough upfront cash flow makes it extremely tough to make a large purchase, but it can pay off immensely in the long run. If you need help financing an equipment purchase, FundKite can provide the funds you need! With quick online approval and next day funding available, you can take advantage of time-sensitive opportunities or combat unexpected challenges. Apply today and get a free quote!