To buy or to lease – that is the question. Many small business owners find this a hard one to answer. Read on as we explore how equipment leasing stacks up purchasing the equipment outright.
PROS OF LEASING EQUIPMENT
Conserve working capital: Purchasing equipment can require a significant chunk of working capital. This is one of the main reasons why the option to lease equipment exists. It allows businesses to obtain equipment with little upfront cost or investment.
Keep equipment up-to-date: If having the latest, state-of-the-art equipment is essential for your business, equipment leasing can be a good option. Depending on your arrangement, you may be able to lease as long as you want and upgrade equipment as needed.
Tax benefits: Your balance sheet shows lease payments as expenses rather than long-term debt. As always, speak to your accountant about tax implications before making significant financial decisions.
CONS OF LEASING EQUIPMENT
Higher cost: When you do the math and break down the numbers, equipment leasing is, unfortunately, one of the more costly financing options for small businesses. Because leasing companies typically don’t use the equipment for the duration of their lifespan, they have to bump up the fees to recoup the cost.
Nothing to show for it: At the end of the day leasing equipment equates to no ownership. That means despite your investment, there is no ability to resell equipment and recover costs.
Lack of flexibility: If flexibility is important to you and your business, keep in mind that you will be on the hook to pay for the full term of your lease whether you actually need the equipment for the entirety of that period or not. If you are able to get out of the lease early there will likely be large termination fees.
HOW EQUIPMENT LOANS CAN HELP
If you want the benefits of owning equipment but don’t have the capital to make a purchase, then an equipment loan may be a good option for you. Some of the key benefits include
Preserves working capital: With an equipment loan, you are able to spread the cost of the purchase over an extended period (i.e. up to 2 years) and retain ownership.
Flexible terms: While not all equipment loans are flexible, some loans specifically designed for Canadian small businesses offer highly flexible and customization terms, with no early repayment penalty.
Fast and simple: If you need equipment fast to replace or repair broken equipment or to take advantage of an opportunity,