Equipment Leasing: Is It Better Than Purchasing?
When the subject of where equipment leasing or purchasing equipment is better, many business owners have strong opinions on the matter. Some will insist that owning equipment has more benefits because those pieces are assets and increase the company’s overall value. Others prefer the flexibility that equipment leasing agreements have to offer. But is there truly a right or wrong in this debate?
Advantages to Purchasing Equipment
Businesses that own equipment do not owe money to their vendors. Those pieces of equipment are assets, and can be leveraged for everything from asset-based lending to seller leaseback financing. Owned equipment also has a depreciation value which, along with “operating costs” can be listed as deductibles when tax season rolls around each year.
The Disadvantages of Purchasing Equipment
Typically, the upfront cost of purchasing equipment is very steep – requiring business owners to seek external funding to cover the high price tag. This creates a cycle, because when it is time to purchase new equipment, the old equipment needs to be sold off at a much lower price than the initial value, and then that amount must be supplemented by additional financing.
The Advantages of Equipment Leasing Agreements
Equipment leasing is a way to sidestep the upfront cost of purchasing equipment, and spreading out payments over manageable monthly installments. Equipment leasing does not involve any debt or loans, and all payments made are fully deductible according to the IRS Tax Code, Section 179. Leasing equipment also comes with various options, such as the ability to purchase, upgrade to the latest models, and even maintenance. All of this is very advantageous, because it allows smaller operations to keep expenditures low, while still getting the equipment they need.
Disadvantages to Equipment Leasing
As stated above, equipment leasing is not the same as purchasing, and leased pieces are now owned and cannot be considered “true assets.” This means that companies cannot use them as collateral for asset-based lending or leaseback financing, nor can their depreciation be claimed on the yearly tax form.
So Which is Better?
The true answer is that it all comes down to the type and size of your business. Small businesses, or businesses that put a lot of wear and tear on equipment, or need frequent upgrades in the case of computers and medical equipment, might prefer equipment leasing to reduce costs and avoid taking on debt through traditional bank loans. Larger establishments with the necessary capital to spend might opt to purchase equipment to add to their assets, and leverage those pieces for additional funding later on down the road.
If your business could benefit from leasing equipment, or if you need financing options in order to purchase equipment for your company, contact Davis Commercial Finance at 916-412-5577. We have the solutions to help businesses of all sizes, across all industries, get the equipment they need for growth and success.