In all businesses, preserving capital and maintains cash flow is extremely important. When considering your needs for equipment, there are a few questions you can ask to see whether leasing or loaning the equipment would be more beneficial for your company.
- How long will you need it?
Anytime less than three years would be better off leased. Most short term loans last for thirty-six months or less and with the cost of maintenance and repairs, it might make more sense to lease the equipment.
- What is your monthly budget?
Leasing the equipment allows for a lower monthly payment. Consider how much your operational budget can afford.
- What are the upfront costs?
Loans require a down payment where maintenance and repairs would be done at your expense. Leasing typically provides 100% financing of the equipment as well as the costs for transport, setup, delivery, testing and training.
- Which option provides the best tax benefit?
If you lease the equipment you would be able to file the monthly cost as a tax deduction on your taxes. Whereas, loaning the equipment would allow you to claim the depreciation tax benefit. Speak with your accountant to see which one would benefit you the most.
- Can/Will it be used for other projects?
If you only need this one specific piece of equipment for one specific job for a specific time, it would make more sense to lease the equipment. However, if you mind that you may have need for multiple pieces of equipment you may be able to have a master lease that allows for more than one piece of equipment to be loaned out, instead of purchasing them separately.
Leasing overall tends to provide more flexibility in regards to being able to get what you need, when you need it, but it’s important to consider your company’s long-term needs. The rates of leasing equipment often change and increase per contract so loaning may be a more viable option over equipment leasing if this is something you’ll need for years to come.