While the appeal of owning your equipment is often strong, leasing can free up significant capital for small business owners. According to a U.S. Equipment Finance Market Study for 2016, 39% of businesses that acquired new equipment leased it compared to 17% in 2012. Leasing capital equipment frees up cash for other financial needs of growing companies. Maybe you’re looking to expand, but can’t afford to buy new equipment. Or your industry changes rapidly, making your current equipment obsolete every few years. Leasing capital equipment:
- Lowers upfront costs, compared to buying equipment outright
- Reduces the chance that your company gets stuck with obsolete equipment, if your contract specifies upgrades
- Transfers the cost of equipment maintenance to the leasing company, again according to the terms of your contract
- Provides an income tax break, because you can deduct your leasing costs as a business expense
- Offers an easier way to get the equipment you need if your company’s credit is iffy
- Eliminates the hassle and cost of trashing outdated and sometimes environmentally harmful equipment
Leasing also has disadvantages, including:
- Potentially higher overall costs, depending on the length of the lease’s term
- Continued payment for obsolete equipment – and even equipment you no longer use – if your lease doesn’t include upgrades and your term hasn’t ended
- The inability to consider leased equipment an asset, a disadvantage if you need collateral to qualify for a loan
- No depreciation deduction on your tax return, unlike the tax benefits of ownership
