Business owners, at some point, will be faced with the decision whether to lease or buy their business equipment.
Both leasing and buying provide different advantages and disadvantages, and depending on the circumstances one option may strongly outweigh the other. Here are the pros and cons to consider when weighing up your options:
Buying: Buying business equipment is an attractive yet expensive option that may not be ideal for businesses with cash flow issues. Buying gives you ownership and control over an asset, so you can make any alterations and sell the asset when you are finished with it.
Purchasing an asset may be ideal in circumstances where an asset does not incur any ongoing liabilities such as maintenance and insurance and will not lose too much of its resale value. There are also a range of financing options available if you do not have the cash to purchase the asset outright.
However, buying is not always an appropriate option as the upfront costs can place additional pressure on your business’s cash flow. Ownership may not be suitable for assets such as technology that can become outdated quickly.
Leasing: Leasing provides you with an asset with little or no down payment and predictable payments. Leasing offers business owners with a flexible way of accessing equipment which is particularly beneficial for younger businesses. Leasing allows you to upgrade when equipment becomes outdated or obsolete rather than having to sell equipment at a loss.
However, leasing may result in higher costs over time and requires interest to be paid. As you do not own the asset, you are required to eventually return it leaving you with no equity. Leasing contracts may also be strict and require longer lease terms than you need.
Ensure to carry out a cost-benefit analysis when deciding to either lease or buy for the most appropriate outcome for your business.