Deciding Whether to Lease or Buy Equipment for Your Small Business

Emma Sturgis

January 09, 2015

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Most small businesses have similar needs for equipment as larger companies they are competing with in the marketplace, but they often have a much smaller budget to work with. When you are reviewing the costs of equipment that you need to run your business, you may be wondering whether it is better to lease or buy. There are a few points to weigh as you make the decision that is best for your business.

The Availability of Financing

In some instances, small businesses may have the deep pockets necessary to purchase new equipment outright, but many will need to seek financing to make a purchase. Newer companies as well as those that have struggled financially may not qualify easily for credit, or financing terms may not be attractive. In some cases, leasing may be the only option, or it may be the most cost-effective option.

Maintenance and Upkeep Tasks

When you lease equipment, some of the repair and maintenance tasks and services may be included in the lease with a service plan. A specialist from Kele advises those purchasing equipment to keep in mind that it may need to be protected or enclosed to stay in good shape—this will help you avoid replacement or repair costs. In some cases, a lease service plan may include these enclosures or covers. If not, you may need to factor these costs into your budget.

Your Long-Term Needs for the Equipment

You also need to consider how long you intend to use the equipment. Keep in mind that equipment may have a limited life span. In addition, new innovations and feature may be unveiled in coming years that may make an upgrade feasible and beneficial. If you purchase the equipment outright, you should ensure that the equipment will serve your practical needs for a specific period of time so that you recoup your investment.

The Tax Benefits

When you purchase equipment, you will benefit from tax deductions and depreciation. These can decrease your tax burden, and in many cases, these tax benefits can be significant to a small business. When you compare the costs associated with purchasing versus leasing, this is a notable factor to analyze.

There are various types of equipment that you may need to invest in now and in the near future. The decision to lease or buy can be challenging to make. You may note that some equipment is more beneficial to lease while other equipment is suitable for a full purchase. Therefore, each item should be analyzed independently to determine the best course of action.