When Does Leasing Make More Sense than Purchasing an Equipment?
One way to keep equipment expenses down is by leasing instead of buying an equipment unit. Determining whether to purchase or lease a physical asset is a vital business decision. The type of business you are in, and the kind of equipment you are planning to buy, are two factors to be considered in this regard. If your business has no capital, then leasing may be a better choice as it provides you with a little more flexibility than buying an equipment unit via equipment financing outright. If you are starting out and require just one PC, for example, it perhaps makes sense to purchase it. In contrast, if you are opening a new office that will have many workers and needs a dozen systems, then you might just want to consider equipment leasing.
So how does equipment lease financing work? Leasing allows businesses to rent an asset from a leasing company or vendor for a specific time period. It typically allows a business to finance the full cost of an asset, and 20% to 25% extra for expenditures.
When the lease period ends, the business should return or buy the item. If the principal amount has been fully paid off, then you may be able to buy it for an affordable price. Leasing equipment is usually pricier for a business in the long run than buying but can mean lower payments per month.