Should you lease or buy manufacturing equipment?
If you’re a manufacturer, then you’re likely often faced with the prospect of needing to upgrade your equipment and working out the best way to pay for it.
Typically, leasing and financing equipment are two of the most effective ways to ensure that your business cash flows remain strong.
But which option is going to be best for your business?
Leasing equipment is a good way to get modern equipment for your business while at the same time, not needing to purchase it outright.
While improving the cash flow of your business by leasing, you are also able to access tax deductions for the full lease payment as a business expense on your annual tax return. This can be a benefit over traditional financing, but it will depend on your business’s financial situation. You should consult a tax professional before making any decisions.
Leases can also be easier to obtain than financing. Depending on the state of your business, the financials and how long you’ve been operating, your ability to obtain finance will likely differ. Monthly leases can at times be cheaper than traditional finance.
The most obvious advantage of buying new equipment with finance is that you will ultimately own the equipment. This can be a significant cost-saver over the long run if you expect to use that piece of equipment for a long period of time.
There are also significant tax benefits that come from buying equipment, particularly with depreciation. By taking advantage of tax deductions for depreciation you can potentially save a substantial sum. While, your interest payments are normally tax-deductible, the principal is not. Again, it’s worth speaking to a professional first because not all equipment could be depreciated.
Generally speaking, buying equipment will normally be cheaper than leasing the equipment over the lifetime of the loan or lease period. You’re also building up equity in the equipment, that you can potentially borrow against in the future.
The main consideration for many when it comes to buying is that you will have to put down a deposit on the equipment to secure the loan. This will impact your cash flow, so it is something that you’ll need to weigh up.
Overall, the main factors to consider when deciding between a lease or a purchase are how long you plan to use the equipment and whether or not that piece of equipment will ultimately become obsolete. From there, it’s a matter of weighing up the cash flow and potential tax benefits.