What are the benefits fo leasing vs. buying equipment for your business? From lower maintenance costs to tax incentives, learn about benefits of leasing.
Given the uncertain economic environment, businesses are keenly interested in strategies for saving money and improving cash flow. For those that plan to buy or upgrade equipment in the coming months, leasing may prove a more pragmatic option over buying.
Each method of acquiring equipment has its pros and cons. However, while leasing may be more expensive over the life of the equipment than an outright purchase, it’s often more cost-effective in the near-term.
As businesses look toward the future with an eye on expense reduction, leasing should be a consideration. Here are five reasons why leasing equipment makes sense:
1. Improved Cash Flow
If your organization opts to purchase equipment, you will likely need to provide a significant down payment if you’re financing the equipment—or purchase the equipment outright. With leasing, however, you typically don’t need to make a large down payment. Instead, companies often require either a deposit or they begin the lease payments.
What’s more, monthly lease payments are traditionally smaller than loan payments for purchased equipment. The cash savings can ensure that your company remains in a stronger financial position overall, preserve a cash buffer for emergency expenses, and allow you to access new equipment, without a significant hit to your reserves.
2. Easier Financing Process
If you’re trying to obtain financing to purchase a large piece of equipment, then your lender will likely want to see at least a few years of your financial history. For less mature companies or those that are already using most of their credit capacity, leasing may provide a better option. Equipment vendor or leasing companies usually only require six months to a year of credit history. The process for securing the lease is also usually quicker than finalizing an equipment loan.
3. Access to Cutting-Edge Equipment
When you buy a piece of equipment, you freeze your access to innovation to the time period of your purchase. This may not make a difference for basic machines or equipment needs such as office furnishing. But it can really matter if employing the latest technology is important to your organization’s performance.
Leasing equipment makes it easier to upgrade as needed to newer, more relevant products. You don’t have to sell existing equipment. Instead, you can simply upgrade what you have with whatever comes next.
4. Reduced Maintenance Costs
Leasing not only helps save money as you acquire equipment, but it can also reduce your maintenance costs. Typically, the equipment vendor will assume maintenance responsibilities as part of the lease. This prevents your organization from surprise expenses if equipment breaks down. It also reduces the need to maintain an extra-large emergency fund in case of unexpected maintenance.
Another underrated, but important benefit—your team doesn’t need to expend time thinking about and planning for maintenance. They can devote their resources to more pressing issues.
5. Tax Incentives
Both equipment purchases and leases offer tax incentives. For example, lease payments are typically considered a business expense, and thus, are tax-deductible. Beginning this year, companies can count equipment leases as a business liability on their balance (akin to what you can do with an equipment purchase). By doing so, organizations can lower their overall taxable income.
When it comes time to invest in equipment, evaluate your options. From saving money upfront to accessing cutting-edge equipment to the tax advantages, leasing may be the best route for your organization.