Every business needs equipment. Every business owner needs to make sure they don’t pay too much money for that equipment. It’s important to consider all the pros and cons of equipment loans vs equipment leasing before making a decision.
Is the Equipment Need Temporary?
If you’re planning to use a piece of equipment temporarily, you may find that equipment leasing is much more feasible. If you use business loans to purchase your equipment you will have to deal with the hassle of buying it and then trying to sell it again when you are done with it. Be sure to determine if your lease has a buyout option so that you can keep the equipment after the initial lease is over, if you want to do so.
Would Used or New Equipment Best Fit Your Requirements?
Do you need brand new equipment, or can you make do with used equipment? Business loans are often available for both purchasing and leasing new equipment. Analyze the cost/benefit of both options, especially if this is one of your business’s first big purchases.
Avoid tying up too much of your capital in equipment. Business loans can help you get started without placing an overwhelming burden on your budget. It is usually smart to start small and increase your capital acquisitions after you have increases in your profits that will support that growth.
Will This Asset be Obsolete in a Few Months?
If you know that the technology in the equipment will become outdated soon, leasing would be a better option than buying. This is especially true if a critical part of your business is technology. Using short-term leases will allow you to have access to the most recent technology at all times. If your business doesn’t rely on the latest gadgets and gizmos, you may find it to be more cost effective to update your products less frequently. In that case, you would use a business loan or equipment financing to purchase the object in question.
How Will This Decision Affect my Taxes?
The final question to consider is the effect purchasing versus leasing the equipment will have on your taxes. When leasing, depending on the type of lease you secure, you typically will be able to deduct the full lease payment immediately. If you finance the equipment, you will only be able to deduct the interest paid on the loan as a business expense.
There are advantages to using business loans to lease or buy equipment for your business. Answering these questions should give you the peace of mind of knowing that you made the very best decision possible.