Equipment Leasing vs. Buying

M

Marc Hayes

Freshman
Jan 12, 2011
59
0
6
Quad Cities, IL/IA
www.tnprod.com
Has anyone gone down the road of deciding whether to buy or lease big ticket items, like main PA and consoles? The more we look at our expansion plans, we wanted to weigh the option.

It seems like leasing may be a more intelligent way to go on the big items like main PA and consoles, because it seems like every few years there is a swing in that "gear that every engineer wants!" The pro to leasing is that we could stay on top of the latest and greatest gear by rotating out the leased inventory every 3-5 years or so. (or whatever you write the lease to be) From a financial side, it takes less cash upfront and payments are tax deductible. I know you pay a bit more in the end, but if we bought, we'd be taking a loan anyway, so we'd still be paying "more" in the end with interest back to the bank.

Buying would allow us to Section 179 the cost, but with all the other gear we buy in the course of a year, we typically don't have an issue getting enough to write off.

If you did end up leasing, what companies did you check out or use?

Thanks!
 
Re: Equipment Leasing vs. Buying

I'm sure other people may have more details than I do, but a lease on production equipment (and commercial vehicles) is usually different from an auto lease. Usually there is no 'residual' value but simply a buyout at the end of the lease term for a very small amount such as 1 dollar.

Lease vs loan is much more for tax and accounting purposes than for being able to buy new equipment every 3 years with a low monthly payment.

YMMV and some equipment manufacturers may have leasing programs I am not aware of that operate in a different manner.
 
Re: Equipment Leasing vs. Buying

You have to look at all aspects of the lease to see if it's going to be worth it. In my experience, there are only a select few instances in a small business where a lease is actually a good idea.

Advantages of leasing:
1. Lower up front cost for gear. This can roughly be accomplished with a loan, but generally with leasing you can get larger amounts than you would with just an open loan.

2. Gear ownership is not yours, therefore no property tax is counted on leased gear. Depending on your location, this could be significant.

3. At the end of the lease, you don't have to worry about disposing of the gear.

Disadvantages of a lease:

1. Generally, with electronics a 3-5 year lease is going to be a payout of the total value of the gear. Depending on the lease, you may be able to buy it out, or you may have to return it. If you buy it out, you can then resell the product. However, the amount you sell it for over the after lease purchase price is now considered profit and would be taxed as such.

2. Leased gear does NOT mean unlimited warranty. If it breaks, you still have to pay for the repairs.

3. You can only list the expense of the lease for the current year on your taxes. With a purchase, you can section 179 the entire purchase. This is only a minor advantage though, as the net result is going to end up the same. It may help in one year and hurt the next to expense everything at once.
 
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