Pros and Cons of Leasing vs. Buying Equipment for Business
Before you make any decisions about equipment, sift through the pros and cons of each to ensure you’re making the best choice.
Benefits of leasing vs. buying equipment
Buying pros:
- Own the equipment
- Lifetime cost is usually cheaper (you can calculate this with life cycle costing)
- Counts as an asset on your balance sheet
- Can claim depreciation on your taxes
- Free to use equipment however you choose
- Can sell the equipment after using it
- Some payments for purchased equipment can be tax deductible
Leasing pros:
- Down payments are usually cheaper (and sometimes no down payment is required)
- Terms are more flexible (e.g., can buy out lease)
- Can test out equipment before committing to it
- Maintenance costs are usually free
- Payments for lease payments are generally tax-deductible
- Great option if you don’t have good credit
- It can be easier to upgrade after your lease expires
- Easier to acquire more quickly
Disadvantages of leasing vs. buying business equipment
Buying cons:
- Need more cash or credit upfront
- Cannot always test out the equipment before purchasing
- You are liable for maintenance and replacements
- May get stuck with old and outdated equipment
- Increase liabilities on the balance sheet, which could prevent you from borrowing more money
Leasing cons:
- You don’t own the item while leasing it
- Higher overall lifetime cost
- Depreciation isn’t tax deductible
- Obligation to stick with the lease due to contractual obligations
- Termination fees for breaking the lease contract
- Operating leases may appear as a liability on your balance sheet
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