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3 Important Comparisons to Help Decide How to Buy New Equipment

Business Insights

Lease, borrow, finance, or pay cash. As a business owner, it can be time consuming to try and determine how to purchase new equipment. Whether it is office equipment, business supplies, or business equipment, there are certain pros and cons with each option. Let’s focus on business equipment.

Leasing Business Equipment

To some people, leasing may seem like throwing money away, because there is no ownership of the equipment. However, leasing is a very viable option for numerous reasons, such as:

  • Fixed interest rates
  • Typically, a low down payment of only 1 or 2 payments
  • Leases under $150,000 may not always require financials
  • As 100% tax deductible, lease payments can be used as a write-off when shown as an operating Loan for Business Equipment

If a business is able to obtain a loan, there are numerous advantages to this type of financing, including:

  • For tax purposes, depreciation may be taken yearly for the life of the equipment
  • When new equipment is needed, the older equipment can be sold to use as a down payment

There are, however, some disadvantages that should be noted:

  • If equipment is needed immediately, fluctuating interest rates can make overall purchase more costly
  • With a typical down payment of 10 to 20 percent, the company may not have the cash readily available
  • The cost of purchasing new equipment can become costly as the existing equipment becomes outdated or inoperable

Using Credit for Purchasing Business Equipment

Using credit is similar to obtaining a loan due to approval time, down payment amount, and use of depreciation. However, there are a few differences, such as:

  • Interest rates are either fixed or can be variable
  • Financial statements are needed to determine credit amount
  • Since the equipment will be owned, it can become obsolete

Paying with Cash

If there is enough cash in the business to purchase the equipment, there are several advantages to paying with cash, such as:

  • No interest payments
  • No approval waiting period with an instant purchase option
  • No financials required
  • The depreciation amount can be used on taxes

There are also a few disadvantages to using cash:

  • Using 100% cash to pay for equipment may use much of the company’s cash reserves
  • Equipment is owned outright, which means when it becomes obsolete, new equipment will need to be purchased

The majority of U.S. businesses lease at least one of the pieces of business equipment.  Leasing has quickly become the overall preferred method for obtaining business equipment due to cash conservation, greater tax savings, and the ability to quickly acquire newer equipment when needed.

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