When running a business, you’ll often be required to make smart decisions when purchasing or leasing equipment. The decision depends on your situation, as renting equipment can be an excellent option for business owners with finite capital or who require equipment that’s upgraded after every few years. Purchasing equipment, on the other hand, can be a better option for initiated businesses or durable equipment. Every business is unique, and purchasing or renting equipment has its conveniences and drawbacks. Below are some details about both options that can help you make the right decision for your business.

Leasing Equipment

This refers to having access to equipment or tools for your business until the lease period is over when you return the equipment to the company. Some of the benefits of renting equipment for your business include the following:

Tax Deductible

This is another benefit of leasing equipment, where the lease payments can be deducted as business costs are on your tax returns. Deducting the payment from tax returns reduces your net lease cost, making it affordable.

Less Upfront Cost

This is the main advantage of leasing as it allows you to access the business equipment with minimal initial costs without paying a down payment, and thus, your business cash flow will not be affected. The monthly payments in leasing are lower than applying for loans to purchase equipment.

Flexibility

Leases are effortless to obtain as they have more flexible terms and conditions than loans for buying business equipment. Leasing can be advantageous to people with bad credit or who wish to negotiate a more extended payment plan.

There are several hiring equipment disadvantages, and they include high overall costs in the long run compared to purchasing equipment, you don’t own the equipment only just for the leased period, and you can’t cut out before the agreed leasing period, or you’ll be required to make a full payment for you to be out.

Purchasing Equipment

When you purchase equipment, you own it and take tax breaks, unlike leasing, where tax returns are deducted. The initial cost is high, making purchasing equipment challenging for most people. Here are some advantages of purchasing equipment.

Ownership

This is the most popular benefit and involves equipment that has long-lasting use and is not likely to be outdated as technology evolves. Some examples of such equipment include office furniture or farm equipment.

Equipment Financing

Not many businesses can purchase expensive equipment with all their money, but taking loans can help in getting the equipment without costing all the company’s money. If you fail to qualify for low-interest loans, you can try out cash flow loans or invoice financing to cover the costs.

Some drawbacks of purchasing equipment are a more significant down payment upfront which can mess up your income flow if you don’t have other payment alternatives, and long-term debt incurred due to loans you apply when purchasing equipment.

When deciding whether to buy or lease business equipment, try to figure out the total cost of the asset, consider the possibility of the equipment being obsolete and whether your need for the equipment is long-lasting or will expire before the leasing period is over. Call KMS Funding today to learn more about purchasing and leasing business equipment.