Either you are a start-up business or small business owner, you will experience a tight budget at some stage if you are not cash-rich. A business needs equipment to run, and equipment comes from nowhere.
If, like many other business, do not have sufficient fund for income-generating equipment, you might want to consider getting finance for equipment. There are 2 major options for financing equipment that you need. One is loans for equipment that you can use to buy the machineries straight away, while the other option is leasing the equipment. There is no absolute right or wrong answer to which option is better for business, as every business has its own of operation.
Personally, I would prefer equipment leasing for start-up and small business than buying it. Why? There are several benefits of leasing equipment that help your business grow and expand. However, it is a good idea to weigh thoroughly the pros and cons of leasing and buying, and make the best decision for your business
1. Conserve Cash
We all know the importance of funds for business running. Equipment purchase could be a huge cash outlay at the early stage of business on top of other daily operational expenses and business expansion, which could lead to business struggles. Equipment leasing can save you cash by not having to pay anything up front.
If you are struggling with cash-flow, having sufficient cash at hand will help you go through hard times, and benefit your business in terms of expansion and more.
2. Keep Your Equipment Updated
One of the disadvantage of buying equipment compared to leasing is that you get stuck with your current machineries while new technology nowadays comes out every single day.
Leasing equipment ensures your flexibilities for the specific equipment you like and want to upgrade. All you need to do is to communicate with your leasing company about your needs and preference, and they will have it all sorted for you with contracts and terms.
3. Save Expense on Maintenance
You expect to encounter equipment breakdown and maintenance at times. If you own your equipment, that means you are responsible for all costs for maintenance and repairs. However, if you are dealing with a finance company, they are in charge of all fixing of equipment, which saves you a considerable amount of budget for other expenses.
Another benefit is that you could have equipment replaced if you need it urgently when it breaks down with leasing, which is not a viable option if you buy your own equipment because you might not want to spend extra cash on buying a same equipment.
4. Tax Benefits
Leasing is a usually tax-deductible as an operational expense under the 179 IRS Tax Code. In many cases, it allows you to a full deduction of lease payment against current earnings. This benefit preserves cash for working capitals that you would not have access to if you paid for your equipment up front.
5. Business Credit
Lease of equipment is a good way to show that you have solid credit in time of need for getting loans for business expansion or other operational expenses. Equipment leasing allows you to keep your business credit line healthy and trust-worthy, which enables you to strengthen the cash flow by responding well to the need of loans.
The listed advantages of leasing equipment may help you decide if you should buy or lease equipment for your business. Which one saves you money in the long run really depends on your specific business. It is always a good idea to look at the whole scale comprehensively with your goal, need and plans, and then decide.