Should you buy or rent the business equipment? Well, opinions differ on which approach is best, but the decision is yours to make as the business owner.
Many factors influence the decision to purchase or lease equipment; and entrepreneurs must never ignore these driving forces.
That’s because each decision has its set of advantages and disadvantages. And some specific business situations may benefit from one approach than the other.
The Underlying Differences
The key difference between purchasing and renting equipment is that the latter means temporary ownership which only lasts as long as the deal lives.
Buying or purchasing, however, means the business gets full ownership of the equipment.
May company owners would rather lease as the cost of buying often overruns the renting fees. Still, you could enjoy a bunch of benefits from full ownership.
Renting Business Equipment
Renting equipment involves making per-month payments to use equipment without full ownership.
For such deals, businesses must surrender the temporary ownership at the end of the agreed-upon period.
Sometimes, a business is allowed to buy the leased equipment at a lower price at the close of the deal.
The Pros
So what are the Pros of leasing?
- You safeguard working capital. Renting is a cheaper alternative than buying. A purchase could eat into your working capital and ruin business.
- Access to Quality Equipment. Companies that rent out rely on their equipment to rake in profits. You get access to the latest equipment for less.
- No collateral requirements. Seeking out a loan to fund equipment purchases can put other business assets at risk. With leases, failure to pay will lead to the recovery of the rented item.
- Eliminates the urge to purchase obsolete equipment. Businesses often consider cheap outdated alternatives when caught between a rock and hard place. Leasing can help you avoid such situations.
- The lender covers maintenance costs.
The Cons
- You don’t own the asset.
- A higher overall cost. Though leasing is cheap, you finally wind up with no asset after months of payments.
- No premature contact terminations. You can’t withdraw from a deal that’s already underway. A hefty penalty fee applies if you insist.
Purchasing Business Equipment
Buying equipment gives full ownership. But not all businesses are well-placed to purchase. Some seek out additional funding through bank loans, MCAs, invoice financing and equipment financing to acquire what they need.
The pros
- You own the equipment
- You enjoy tax benefits such as bonus depreciations
- No commitments to monthly payments
The Cons
- May lead to high upfront costs especially if you have to rely on other sources of funding
- You sort out maintenance costs
- May lead to long-term debt repayments
- Factors to Consider before a Lease or purchase
- Consider the following to make a more informed decision.
- The amount you can afford to pay per-month for a lease?
- Does owning the asset matter to you?
- Are there any down payments and can you pay it comfortably?
Lastly, you also want to consider how long the equipment will remain useful to your business.