Buying vs. Leasing Your Equipment

Whether you’re starting up an accounting firm, a family-owned restaurant or a farm, you’re going to need equipment to get your business up and running. This will a significant financial decisions, and you will want to take the time necessary to consider whether buying or leasing better suits your needs.  

The benefits of leasing  

One important factor in your decision to buy or lease is how often your equipment will need to be updated. Farming and landscaping machinery may remain useful for long periods, while computer equipment and other technology-based tools can become obsolete within a few years. Short-term leases on computers, printers and other office technology can shift the burden of obsolescence to the company that owns the equipment.  

If your business is still early in its life, extra capital might be hard to come by. Leasing equipment does not typically require a large down payment, which can save you the trouble of pulling together a large sum of money when funds are tight. Leasing also tends to carry a lower monthly rate than a business loan or line of credit, though you may pay more in the long run than you would if you purchased the equipment outright.  

Leasing can also be financially beneficial because you may not be responsible for maintenance. If your equipment runs into a problem, the burden of fixing it may fall on the leasing company. This can be helpful, though it may also be frustrating if the company maintains equipment to its own specifications or does not address your issues as quickly as you would prefer.  

Leasing may also offer tax advantages, since qualifying lease payments can often be deducted as business expenses. Tax treatment changes over time and depends on how the lease is structured, so consult a tax professional before making a decision. 

The benefits of buying  

As with any purchase, equity is arguably the biggest advantage of buying business equipment. If the equipment in question is a lynchpin of your business and is something from which you expect to get several years of use, purchasing is the wiser of the two options. If you should determine down the line that you need a more updated version of that equipment, you can sell the equipment you own to recover some of its original cost and put that toward your next purchase.  

Because you own purchased equipment, you can alter or improve it as you see fit. While you will be financially responsible for maintenance costs, you will not be bound by a leasing company’s maintenance standards, which may be more expensive or less flexible than you would prefer. You can also prioritize repairs to get the equipment operational more quickly.  

If you can afford to purchase equipment outright, you won’t be required to submit paperwork detailing your business’s finances or how you intend to use it to the owner. So long as you have the means to pay for it, it is yours. Paying for your equipment without financing is also preferential if you look at long-term costs — leasing and financing will involve compounding interest payments, which means you’ll pay more than the original sticker price.  

Like leasing, purchased equipment may qualify for accelerated tax treatment if it meets IRS requirements and is placed in service during the tax year. Section 179 expensing and bonus depreciation rules have changed in recent years, including higher deduction limits and restored 100% bonus depreciation for certain qualifying property, so businesses should verify the current limits and work with a tax professional before making purchase decisions. 

As with so many business decisions, the choice between buying and leasing comes down to your individual needs. Speak with your financial advisor before making any significant decisions, particularly if you are still early in the start-up process. 

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At Five Star Bank, we’re here to help you grow with personalized services designed to meet your unique business needs. Reach out today to learn how we can help. 

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