Leasing vs Purchasing Equipment for Businesses

Lauren Ward

Updated November 23, 2021

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

When you’re starting a business, it can be tempting to lease rather than buy any expensive office or warehouse equipment you need in order to conserve cash flow. However, this may or may not be your best option.Whether it’s better to buy or lease equipment for your business will depend on a number of factors, including your cash reserves, the type of equipment you need, whether that equipment will hold its value over time, and how long you plan to have the item in service.Read on to get all the pros and cons of leasing vs buying equipment, tools, computers, and vehicles for your company.

Leasing vs Buying Equipment

Leasing business equipment can help preserve capital and provide flexibility, which can be important when you are starting a small business. However, leasing could end up costing you more in the long run. Let’s break it down and compare. Leasing vs BuyingThe lease vs buy equipment decision often comes down to money. Purchasing typically comes with a much higher upfront cost. In addition, monthly payments on a loan for purchasing equipment tend to be higher than monthly equipment lease payments. But if the equipment doesn’t depreciate over the years (meaning it holds its value and usefulness as time goes by), then you’ll likely end up paying more to lease than you would have if you had simply purchased the equipment in the beginning. While the upfront cost of buying equipment can be intimidating, there are many types of loans, including heavy equipment financing loans and basic small business loans, that can help you.If the equipment you need is in a constant state of flux, however, such as point of sale systems and computers, it could make more financial sense to lease.Recommended: Equipment Financing: What It Is and Tips for Applying

What Types of Business Equipment Can You Lease?

Just about any type of equipment that is pivotal to a business’s operation can be leased. This includes, but is not limited to:

Audio equipment
Communication equipment
Company vehicles
Computer hardware
Computer software
Construction equipment
Digital signage
Fitness equipment
HVAC systems
Lighting systems
Manufacturing equipment
Medical equipment
Office furniture
Office equipment
- Copiers and printers
- Fax machines
- Scanners
Point-of-sale systems
Security systems
Telephone systems
- Call center systems
- Wireless point-to-point systems
Trailers
Video conferencing
Video surveillance
Warehouse equipment
- Forklifts

Pros and Cons of Leasing Computers

Whether business owners should lease vs. buy computers is a decision that ultimately comes down to the following pros and cons: The biggest argument in favor of computer leasing for small business owners may be that the hardware is always up-to-date. A lease may allow you to stay current on the latest technology without having to re-purchase every couple of years. This can help small businesses keep up with the technological curve.If your tech needs are modest, however, and you can comfortably use the same gear for longer than five years, it may make more sense to simply buy the equipment you need.

Pros and Cons of Leasing Business Vehicles

To lease vs purchase a business vehicle is also a debate for many business owners. When making that decision, it can help to consider the following:Leasing a car can have many advantages for business owners, including a potentially higher write-off on your taxes and lower monthly costs. In terms of the long-term financial impact, however, leases can be less attractive. Since you don’t build equity and typically have to pay fees that don’t come with a loan (such as an acquisition, or lease initiation, fee), it could be cheaper overall to buy a car and hold onto it for as long as possible. Vehicle refinancing can provide relief down the road.Buying can also make sense if you plan to do any customization to the car, since altering the car is not typically allowed with a lease.If you think buying might be the way to go but want to conserve capital, you may want to look into getting a small business auto loan, which is a type of financing tailored specifically for business owners.

Pros and Cons of Leasing Warehouse Equipment

Unlike computers, warehouse equipment tends to age pretty well, so there’s a lot to consider when deciding whether to purchase vs lease your warehouse equipment. To make a decision about whether to lease or buy warehouse equipment, you may want to consider how long you are going to need it. If the asset is something you know you’re going to need for the next decade or so, paying cash or financing the purchase could make more sense than leasing.

Financing Equipment for a Small Business

You can find equipment loans through both big and small lenders. Plus, there are many lenders who specialize only in equipment loans for small businesses. The size of the loan you’ll be able to receive will most likely depend on your credit score, assets, and cash flow. If you don’t have excellent credit, however, you aren’t necessarily out of luck. There are ways to get equipment financing with poor credit, such as offering additional collateral or increasing your down payment. When applying for a small business loan, you will likely need to present information about your business, financial statements for you and your business (such as profit and loss statements, tax returns, and bank account statements), and also explain how you plan to use the loan. Depending on the lender, you may be able to apply online, at a local branch, or over the phone.

The Takeaway

It can be wise to make lease vs buy equipment decisions on a case-by-case basis. Leasing can be a good option for business owners who have limited capital or who need equipment that must be upgraded every few years, while purchasing equipment can be a better option for established businesses or for equipment that has a long usable life.If you decide purchasing equipment makes more sense for your business but want to preserve capital, you may want to explore different financing options. With Lantern by SoFi, you can compare rates from multiple small business lenders with just one application.

Photo credit: iStock/junceThis article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice. The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.SOLC1021208

About the Author

Lauren Ward

Lauren Ward is a personal finance expert with nearly a decade of experience writing online content. Her work has appeared on websites such as MSN, Time, and Bankrate. Lauren writes on a variety of personal finance topics for SoFi, including credit and banking.

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