Business Equipment: Lease or Buy?

Whether leasing or buying is better for your business depends on the type of business you're in and the type of equipment you need. Here are five considerations to help you decide what's right for you.

1. Does the business equipment need to be updated frequently?

First, consider the type of equipment you want to buy. If the equipment will become obsolete quickly, you may be better off leasing. The same holds true if the equipment tends to need frequent maintenance and/or is expensive to repair. 

2. Do you have enough cash on hand to buy it?

Any business needs a solid foundation of liquid assets to manage its day-to-day operations. Buying a piece of equipment outright is more likely to require a big up-front payment. If this will leave your cash-on-hand severely depreciated, buying may not be the right option. 

An alternative and potentially better option might be to finance the equipment. Compare the monthly cost of that loan to the amount you would pay to lease the equipment. 

3. What are the tax consequences if you lease vs. buy?

For those who are leasing equipment it's often tax-deductible under Section 179 of the IRS Tax Code. On the other hand, there are tax incentives for buying certain types of equipment under the same section. Check with a financial advisor to weigh the advantages for the type of equipment you need.

4. What equity could you gain by buying the equipment?

Consider if the equipment you're considering has a good resale value, and if it depreciates slowly or quickly. If you can reasonably expect to sell the equipment for a good sum down the road, financing or buying might be a strong option. You won't gain any equity by leasing.

5. Do you need to customize the equipment?

Consider if you need to build or modify a specialized piece of equipment that will likely require customization: Companies that lease equipment typically won't allow you to request much or any customization. Additionally, companies that fabricate specialized equipment may not allow for leasing.  If you're in need of specific, customized features, financing or buying may be your best — even your only — option.

Ask these five questions with every piece of equipment you want to lease or buy — the answers will likely be different depending on what type of equipment it is. This strategy will ensure a healthier financial future for your business.

Learn more about business financing options with BECU.