There is a difference when it comes to deciding whether to lease or purchase equipment for your company. When equipment is purchased, you are able to use and keep the equipment for as long as it lasts. You are also able to depreciate the cost on your business tax return. When a business leases their equipment as an alternative to an out right purchase, up front this may cost more in terms of cash flow. However discover the other advantage that equipment finance leasing has its advantages too.
The Upfront Costs are Lower
When it is time to obtain equipment for your business, the only upfront costs that you will have are the first months lease payment and some processing fees. When out right purchasing equipment a business owner will have to either pay the full cost of it. If the equipment is financed, the down payment may be more than what a lease payment could have been.
Many companies have enough cash reserves to buy equipment, but why not just keep the cash and use it for other purposes in your business and instead try finance equipment leasing.
Lease Payments are Business Expenses
Business equipment monthly lease payments are generally a tax deductible business expense and your accountant knows this. You can offset the finance costs of the equipment and take advantage of the tax savings by including your equipment lease onto your company’s tax return.
When purchasing some business equipment, its value can be depreciated when you follow the tax rules respectively. If financed, the interest can be deductible. It seems to me that when purchasing equipment it can make more complexity of a tax return.
Keeping Your Equipment Up To Date
In some industries the propensity for equipment to be come obsolete, old or out date could happen within a few years. This is especially true with technology ever progressing. Not to mention that if you lease equipment you won’t have to worry about replacing or disposing it.
Let’s look at an example of a company that needs a computer system for their business. They can quickly lease computer equipment for a term of three years (software limited to 3 years). When the leased computer equipment contract expires, they can get new equipment by starting a new lease. When a lease terminates, that company or financial institution that leased the equipment will take away the old equipment for you.
On a side note I would like to add that if you need equipment that has a long life time, this may not be useful for your business. Equipment finance lease terms are generally for less than five years.
Lease Equipment or Own Equipment
If you want absolute control of your equipment and being able to manage your resources as you see fit then owning the equipment is the way to go. You are also able to get rid of the equipment any time you want or use it as long as you want, since you own it.
When a lease comes into play you will lose some of that control but there are some simplicity advantages. Your equipment will be delivered to you. Then just make the lease payments and the equipment is picked up at the end of the term. There are some instances that the equipment could be purchased for a small fee at the end of the lease, if you want to keep it. Ask your loan consultants at Commvestor Funding to explain your options. Lastly you will not have to put much time managing the equipment you lease compared to if you were the owner of it.
Disclaimer: This is not tax advice. Check with a CPA or tax attorney for more information.