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Decisions, decisions: Should you buy or lease business equipment?

As we've discussed in previous posts, once an entrepreneur has laid the foundation for their new operation -- selecting an entity, drafting a business plan, hiring employees, etc. -- there is still a significant amount of work that needs to be completed. For example, office or commercial space will need to be found, and new business equipment secured.

Regarding this last point, it's not just desks, chairs and office supplies that will need to be secured, but also major expenses such as computers, specialized machinery or even vehicles. This, in turn, raises the question of whether the entrepreneur would be better off leasing or purchasing this type of business equipment.

What are the pros of leasing?

According to experts, budding business owners can derive a host of benefits from leasing business equipment, including:

  • Eliminating the need to secure additional financing to cover purchase costs or make a sizeable cash outlay at the outset of operations
  • Providing the chance to determine whether the equipment is really necessary for the business going forward (if a short-term lease is executed)
  • Remaining current with technological developments
  • Granting a significant tax advantage as rental/lease payments can be deducted

What are the cons of leasing?

As you might have imagined, there are certain disadvantages that can come from leasing rather than purchasing business equipment outright. According to experts, these include:

  • Paying out more in lifetime costs
  • Sacrificing an ownership interest (especially if the equipment is too costly to buy at the end of the lease)
  • Missing out on the tax advantages provided by depreciation deductions

Is there any sort of middle ground between purchasing and leasing business equipment?

One sort of middle ground that experts indicate entrepreneurs might want to consider is attempting to negotiate a purchase option as it relates to otherwise pricy equipment that will likely be needed post-lease. This would essentially see a portion of lease payments being credited toward the purchase price.

What all of this really serves to underscore is that those looking to lease business equipment should strongly consider speaking with a skilled legal professional who can assist with these sorts of negotiations, and carefully review any lease agreements to ensure the terms are fair.

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