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Need Equipment? Is it Better to Buy or Lease?

written by: John Garger•edited by: Michele McDonough•updated: 5/22/2010

Should I buy business equipment or lease it? After becoming an entrepreneur, this may be your second step, but it is your primary need. Go through this article to get a clear idea about buying and leasing equipment and which one is good for your venture.

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    You have planned to turn yourself into an entrepreneur. You may have selected your business line as well and now are pBuying or Leasing Business Equipments? ondering over the question whether it is better to lease or buy business equipment.

    The answer would completely depend on the situation that you are in.

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    Opting for Leasing Business Equipment

    At times when the business owner has limited capital or is unsure whether his/her business would provide him/her with profitable returns, then s/he may opt for leasing business equipment. In some cases, the business owner also opts for leasing business equipment if one feels the need to upgrade business equipment over the years.

    In this case, purchasing business equipment will make the business owner suffer huge losss if required to purchase new equipment on a regular basis.

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    Advantages of Leasing Business Equipment

    Initial expense stands less – This is one of the most effective advantages of leasing business equipment. The initial expenses stand at a bare minimum. Also, leasing business equipment hardly requires a down-payment to be made so the apprehensions regarding cash flow influence are almost negligible.

    Tax deductible – Another major benefit of leasing business equipment is expressed in terms of the financial benefit that you gain out of it. You can portray the leased equipment as business expenses incurred during the financial year. This will, in turn, reduce the net cost that you have incurred during the business equipment lease period.

    Terms are flexible – Leasing business equipment comes along with easy terms and conditions. They are not only easy to acquire and the terms associated with it are more flexible when compared to loans acquired to buying business equipment.

    Upgrading was never easier before – Also, upgrading business equipment that you have purchased incurs more cost than business equipment that you have acquired by lease. Furthermore, addressing the obsolescence problem becomes quite easy when you are leasing business equipment. When your lease ends, you may feel free to acquire high-end equipment in place of the outdated ones.

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    Disadvantages of Leasing Business Equipment

    Overall cost is comparatively higher – This stands true when you are leasing equipment. If you make an outright purchase the cost stands lower than when you have acquired equipment by lease. For instance, when you lease machinery worth $8000 for a span of three years, and that also for a standard rate of $80 per $1000 it will cost you $11520. If you would have made an outright purchase the cost could have been just $8000.

    You are not the owner – Not only the higher cost involved in leasing business equipment is a significant disadvantage but if the machine becomes obsolete by the end of the lease period, the lack of ownership may turn out to be a significant problem.

    Compelled to pay until the last day of the leasing period – Even if you stop using the leased equipment in the midst of the leasing period, you will have to pay till the end date. Some business may offer you the option of canceling your lease but you are bound to pay the early termination fees.

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    Final Decision on Buying vs Leasing

    Still confused with the questions whether you would buy or lease business equipment? Then, sit for a while to calculate the cost that you will incur if you buy or lease the equipment that you require for your business. Leasing often forms a better option for those entrepreneurs who look forward to optimize returns with a minimum investment.

    Also don't forget to take into consideration the tax breaks or resale value when you are weighing the pros of leasing business equipments over purchasing business equipments.

    Image Credit: Wikimedia Commons